AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 14, 2000
REGISTRATION NOS. 033-82366 AND 811-08690
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER [X]
THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 14 [X]
REGISTRATION STATEMENT UNDER [X]
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 16 [X]
(CHECK APPROPRIATE BOX OR BOXES)
THE DLB FUND GROUP
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
ONE MEMORIAL DRIVE, CAMBRIDGE, MA 02142
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 225-3800
NAME AND ADDRESS
OF AGENT FOR SERVICE: COPY TO:
--------------------- --------
JOHN E. DEITELBAUM, COUNSEL GREGORY D. SHEEHAN, ESQ.
DAVID L. BABSON & CO. INC. ROPES & GRAY
ONE MEMORIAL DRIVE ONE INTERNATIONAL PLACE
CAMBRIDGE, MA 02142 BOSTON, MA 02110
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX):
[ ] IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (B) OF RULE 485
[ ] ON _____________ PURSUANT TO PARAGRAPH (B)
[ ] 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A)(1)
[ ] ON _____________ PURSUANT TO PARAGRAPH (A)(1)
[X] 75 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A)(2)
[ ] ON _____________ PURSUANT TO PARAGRAPH (A)(2)
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
[ ] THIS POST-EFFECTIVE AMENDMENT DESIGNATES A NEW EFFECTIVE DATE FOR A
PREVIOUSLY FILED POST-EFFECTIVE AMENDMENT.
THIS POST-EFFECTIVE AMENDMENT RELATES ONLY TO THE DLB HIGH YIELD FUND, A SERIES
OF THE REGISTRANT CURRENTLY REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940.
NO INFORMATION RELATING TO ANY OTHER SERIES OF THE REGISTRANT IS AMENDED OR
SUPERSEDED HEREBY.
<PAGE>
THE DLB FUND GROUP
This Prospectus offers shares of the DLB High Yield Fund:
o DLB HIGH YIELD FUND
seeks to achieve a high level of current income by investing primarily
in a portfolio of publicly traded high yield debt securities
David L. Babson & Co. Inc. (the "Manager") is the investment manager for the
Fund.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE
SHARES OF THE FUND OR PASSED ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
STATEMENT TO THE CONTRARY IS A CRIME.
PROSPECTUS
March __, 2000
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TABEL OF CONTENTS
ABOUT THE FUND 1
DLB High Yield Fund 1
DESCRIPTIONS OF PRINCIPAL INVESTMENT RISKS 4
TEMPORARY DEFENSIVE POSITIONS 7
HOW THE FUND IS MANAGED 8
The Manager 8
Investment Advisory Fees 8
Portfolio Managers 8
INVESTING IN THE FUND 9
How to Open an Account 9
How to Purchase Shares 9
How to Sell Shares 10
How Share Price is Determined 11
Distribution and Service (Rule 12b-1) Plan 12
Principal Underwriter 12
DISTRIBUTIONS 13
TAXES 14
APPENDIX A 15
Additional Investment Policies and Risk Considerations 15
APPENDIX B 17
Description of Bond Ratings Assigned by
Standard & Poor's and Moody's Investors Service, Inc. 17
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ABOUT THE FUND
DLB HIGH YIELD FUND
INVESTMENT OBJECTIVE
The investment objective of the DLB High Yield Fund (the "High Yield Fund") is
to achieve a high level of current income by investing primarily in a portfolio
of publicly traded high yield debt securities.
PRINCIPAL INVESTMENT STRATEGIES
Under normal circumstances, the Fund will invest at least 65% of its total
assets in lower rated fixed income securities, which are commonly known as "junk
bonds."
MARKET SECTORS: The Fund invests primarily in publicly traded high yield (i.e.
lower rated) U.S. fixed income securities. The Fund may also invest in
convertible securities, preferred stocks, warrants, bank borrowings and other
fixed income securities (such as Rule 144A private placements) and may engage in
securities lending.
MATURITY: Under normal market conditions, the Fund will have an average
dollar-weighted portfolio maturity ranging from 6 to 10 years. The Fund's
portfolio may include securities with maturities outside this range.
PORTFOLIO QUALITY: The Fund will invest primarily in lower rated fixed income
securities. A lower rated fixed income security is a security that, at the time
the Fund acquires the security, is not rated in one of the top four rating
categories by either of the major rating agencies (Moody's Investors Service,
Inc. or Standard & Poor's), or an unrated security that the Manager determines
to be of comparable quality. Thus, a lower rated fixed income security will be
rated below Baa3 by Moody's Investor's Service, Inc. and below BBB- by Standard
& Poor's, or will be an unrated security that the Manager determines to be of
comparable quality. These securities are considered below investment grade and
are commonly known as junk bonds.
SECURITY SELECTION: The Manager employs a bottom-up, fundamental approach
[(securities selection determines industry and sector allocation)] to its credit
analysis which focuses first on a specific issuer's financial strength, among
other things, before considering either trends or macro economic factors. The
Manager prefers companies that possess one or more of the following
characteristics:
o Domination of a niche business
o Strong management
o A producer of products in strong demand
o Ability to maintain high profit margins
o Predictable earnings
PRINCIPAL INVESTMENT RISKS
The primary risks of investing in the Fund include the following:
o The risk that issuers of debt the Fund holds will not make (or will be
perceived as less able or unlikely to make) timely payments of interest and
principal. This credit risk is higher for corporate debt than for U.S.
government debt and is higher still for junk bonds. Because the Fund invests
mainly in junk bonds, this risk is heightened for the Fund. During recessions
and periods of broad market declines, a high percentage of issuers of junk
bonds may default on payments of principal and interest, and junk bonds could
become less liquid, meaning that they will be harder to value or sell at a
fair price. The price of a junk bond may, therefore, decline drastically due
to bad news about the issuer or the economy in general. INVESTORS SHOULD
CAREFULLY CONSIDER THE RISKS ASSOCIATED WITH AN INVESTMENT IN THE FUND.
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PRINCIPAL INVESTMENT RISKS(CONT.)
o The risk that movements in the securities markets will adversely affect the
value of the Fund's investments. This risk includes interest rate risk, which
means that the prices of the Fund's investments, particularly the
fixed-income investments in which it mainly invests, are likely to fall if
interest rates rise. Interest rate risk is often highest for investments with
long maturities.
o The risk that the price of one or more of the investments in the Fund's
portfolio will fall, or will fail to appreciate as expected by the Manager.
Many factors can adversely affect an investment's performance. This risk is
greater for smaller companies, which tend to be more vulnerable to adverse
developments.
You will find a discussion of these and other risks in the section entitled
"Descriptions of Principal Investment Risks," beginning on page 4.
There is no guarantee that the Fund will achieve its objective, and you could
lose money on your investment. Furthermore, the Manager, despite using various
investment and risk analysis techniques, may not achieve the results expected
from an investment in the Fund.
PAST PERFORMANCE
Because the Fund is new, information on the Fund's performance is not provided
in this section.
EXPENSE INFORMATION
As an investor, you pay certain fees and expenses in connection with your
investment. The table shown below describes the fees and expenses that you may
pay if you buy and hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES EXPRESSED
AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS
(Expenses that are deducted from Fund assets)
Management Fees 0.50%
Distribution and Service (12b-1) Fees (1) None
Other Expenses (2) 0.56%
Total Annual Fund Operating Expenses 1.06%
Fee Waiver (0.31%)
Net Expenses (3) 0.75%
(1) The Fund has adopted a distribution and service plan pursuant to Rule 12b-1
that permits payments by the Fund at an annual rate of up to 0.50% of the
Fund's average daily net assets. The Trustees, however, have no intention
of implementing the plan during the Fund's current fiscal year. See
"Investing in the Fund- Distribution and Service (12b-1) Plan."
(2) "Other Expenses" include accounting and audit fees, custodian fees,
transfer agent fees, legal fees, registration fees, printing fees and fees
paid to The DLB Fund Group's independent Trustees.
(3) The Manager has contractually agreed with the Fund to bear certain expenses
for the current fiscal year to the extent that the Fund's Total Annual Fund
Operating Expenses-other than brokerage commissions, hedging transaction
fees and other investment related costs, extraordinary, non-recurring and
certain other unusual expenses, such as litigation and other extraordinary
legal expenses, securities lending fees and expenses, and transfer
taxes-would otherwise exceed the percentage of the Fund's average daily net
assets noted in the bottom line of the table. The Manager's fee waiver and
expense agreement with the Fund during the Fund's fiscal year ending
October 31, 2000 will automatically continue for successive one-year
periods unless either The DLB Fund Group or the Manager terminates the
agreement by giving six months' advance notice to the other party.
Examples
These examples are intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The examples assume that
you invest $10,000 in the Fund for the time periods indicated, that your
investment earns a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or
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EXAMPLES (CONT.)
lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS
$77 $308
Since the Fund does not impose any shareholder fees, the figures shown would be
the same whether or not you redeemed your shares at the end of a period.
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DESCRIPTIONS OF PRINCIPAL INVESTMENT RISKS
This section explains the principal investment risks associated with investments
in the Fund. These risks are the primary reasons for possible decreases in the
value of your investments in the Fund. The types of risks and the extent to
which they affect the value of your investment in the Fund may change over time,
particularly as the types of investments made by the Fund change.
ALLOCATION RISK
The Manager will use its judgment when allocating the Fund's investments among
various segments of the high yield fixed income markets. The Manager may miss
attractive investment opportunities by underweighting markets where there are
significant returns. The Fund could lose value if the Manager overweights
markets where there are significant declines.
The Manager has discretion to determine the investments made by the Fund. The
Fund is not managed with the goal of mirroring the securities of any particular
index. The Fund's investment style may result in the Fund being overweighted or
underweighted compared with industry sectors or market segments in an index and
may result in the Fund holding securities within a particular sector or country
that are different from the securities included in an index for that sector or
country. Thus, the Fund's returns may vary substantially from the performance of
the indices with which it is compared.
COMPANY RISK
A company's economic condition influences the prices of its securities. The
price of any security held by the Fund may rise or fall for a number of reasons,
including but not limited to the following:
o management decisions
o changes in management
o changing demand for the company's goods or services
o changes in or differences between actual and anticipated earnings
o the potential for takeovers and acquisitions
o increased production costs
o stricter government regulations
o a rating agency downgrade
CONVERTIBLE SECURITIES RISK
Because convertible securities can be converted into equity securities, their
value normally will vary in some proportion with those of the underlying equity
securities. Due to the conversion feature, convertible securities generally
yield less than non-convertible fixed income securities of similar credit
quality and maturity. The Fund's investment in convertible securities may at
times include securities that have a mandatory conversion feature, pursuant to
which the securities convert automatically into common stock at a specified date
and conversion ratio, or that are convertible at the option of the issuer. When
conversion is not at the option of the holder, the Fund may be required to
convert the security into the underlying common stock even at times when the
value of the underlying common stock has declined substantially.
CREDIT RISK
The issuer of a fixed income security may not be able to pay principal and/or
interest when due. The value of a fixed income security generally will fall if
the issuer fails to pay principal or interest when due, a rating agency
downgrades the issuer or other information negatively influences the market's
perceptions of the issuer's credit risk.
Credit risk is greater for the Fund since it typically invests a significant
portion of its assets in lower rated fixed income securities ("junk bonds").
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<PAGE>
CREDIT RISK (CONT.)
Since the Fund may invest in fixed income securities issued in connection with
corporate restructurings by highly leveraged issuers or in fixed income
securities that are not current in the payment of interest or principal (i.e.,
in default), the Fund may be subject to greater credit risk because of these
investments. Securities that are rated CCC or below by Standard & Poor's or Caa
or below by Moody's Investors Service, Inc. (see Appendix B for more
information) are generally regarded by the rating agencies as having extremely
poor prospects of ever attaining any real investment standing.
The Fund may at times invest in zero coupon fixed income securities,
payment-in-kind fixed income securities, and deferred interest fixed income
securities. These types of securities allow an issuer to avoid generating cash
to make current interest payments. As a result, these bonds involve greater
credit risk and are subject to greater price fluctuations than fixed income
securities that pay current interest in cash.
To the extent that the Fund invests in foreign securities, it is subject to
increased credit risk because of the difficulties of requiring foreign entities
to honor their contractual commitments and because a number of foreign
governments and other issuers are already in default.
INTEREST RATE RISK
The values of fixed income securities, such as bonds, notes and asset-backed
securities, generally vary inversely to changes in prevailing interest rates.
For example, when interest rates rise, the values of fixed income securities
tend to fall. This risk is generally greater for securities with longer
maturities and durations. Fluctuations in the values of fixed income securities
held by the Fund will not affect the income paid by the Fund but will affect the
value of the Fund's shares.
Interest rate risk will have a greater influence on the price of a fixed income
security if the security has a longer maturity or duration. Fixed income
securities with longer maturities or durations therefore are more volatile than
fixed income securities with shorter maturities or durations. The average
maturity of the Fund's fixed income investments will affect the volatility of
the Fund's share price.
LIQUIDITY RISK
Securities that are not registered under the Securities Act of 1933, as amended
(the "1933 Act"), including securities issued in accordance with Rule 144A under
the 1933 Act ("Restricted Securities"), present certain risks. Investments in
Restricted Securities could cause the liquidity of the Fund to decrease if the
market's interest for those securities decreases, particularly because the
market for these securities may be limited to certain qualified investors.
Under these conditions, the Fund may not be able to sell those securities when
it wants to, and the Fund may have to sell those securities at an unsatisfactory
price. Market quotations may be less readily available for Restricted
Securities, and thus judgment may play a greater role in the valuation of these
securities than it would in the valuation of unrestricted securities.
In addition, the Fund, either by itself or together with other funds managed by
the Manager, may own all or most of the fixed-income securities of a particular
issuer. This concentration of ownership may make it more difficult to sell, or
determine the fair value of, these investments.
In foreign markets, and particularly in emerging markets, investing in
securities not registered under applicable securities laws may exacerbate the
risks of investing in domestic restricted securities or in registered securities
of companies located in foreign or emerging markets, as the case may be. In
particular, the liquidity of such securities and the information available
regarding such securities may be extremely limited.
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<PAGE>
LOWER-RATED FIXED INCOME
SECURITIES RISK
Lower-rated fixed income securities ("junk bonds") and comparable unrated
securities in which the Fund invests have speculative characteristics. Changes
in economic conditions or adverse developments affecting particular companies or
industries are more likely to lead to a weakened capacity to make principal and
interest payments on such obligations than in the case of higher-rated
securities.
The Fund may hold any portion of its assets in lower rated (i.e. below
investment grade) securities. Lower rated fixed income securities involve
greater volatility of price and yield, and greater risk of loss of principal and
interest, and generally reflect a greater possibility of an adverse change in
financial condition which would affect the ability of the issuer to make
payments of principal and interest. The market price for lower rated fixed
income securities generally responds to short-term corporate and market
developments to a greater extent than high-rated securities because these
developments are perceived to have a more direct relationship to the ability of
an issuer of lower rated fixed income securities to meet its ongoing
obligations.
MARKET RISK
The value of the securities held by the Fund may fall due to changing economic,
political or market conditions, the general outlook for corporate earnings,
changing interest rates, investor sentiment or disappointing earnings results.
Additionally, the values of high yield securities can be influenced by economic
and political conditions independent of changes in the creditworthiness of a
particular issuer.
NON-DIVERSIFICATION RISK
The Fund is non-diversified, which means that it may invest a relatively high
percentage of its assets in the securities of relatively few issuers. Investment
in the securities of a limited number of issuers may increase the risk of loss
to the Fund should there be a decline in the market value of any one portfolio
security. Investment in a non-diversified fund therefore entails greater risks
than investment in a diversified fund. Given that the Fund is not diversified,
the Fund is not intended to be a complete investment program.
PREFERRED STOCK RISK
Like other equity securities, preferred stock is subject to the risk that its
value may decrease. Preferred stock may be volatile and may be more risky than
other forms of investment. If interest rates rise, the dividend on preferred
stocks may be less attractive, causing the price of preferred stocks to decline.
Preferred stock may have mandatory sinking fund provisions or call/redemption
provisions that can negatively affect its value when interest rates decline. In
addition, in the event of liquidation of a corporation's assets, the rights of
preferred stock generally are subordinate to the rights associated with a
corporation's debt securities.
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<PAGE>
TEMPORARY DEFENSIVE POSITIONS
For temporary defensive purposes, the Fund may invest any portion of its assets
in cash or in any securities that the Manager deems appropriate in response to
what the Manager believes are adverse market, economic, political or other
conditions. Keep in mind that a temporary defensive strategy still has the
possibility of losing money and may prevent the Fund from achieving its
investment objective.
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<PAGE>
HOW THE FUND IS MANAGED
THE MANAGER
The Fund is advised and managed by its Manager, David L. Babson & Co. Inc.
Founded in 1940, the Manager provides investment advisory services to a
substantial number of institutional and other investors, including other
registered investment companies. As of January 1, 2000, the Manager had more
than [ ] billion in assets under management. The Manager's principal locations
are One Memorial Drive, Cambridge, Massachusetts 02142 and 1295 State Street,
Springfield, Massachusetts 01111.
Under a Management Contract relating to the Fund, the Manager selects and
reviews the Fund's investments and provides executive and other personnel for
the management of The DLB Fund Group. The Manager carries out its duties subject
to the policies adopted by The DLB Fund Group's Board of Trustees.
INVESTMENT ADVISORY FEES
The Fund pays the Manager an investment management fee of 0.50% of the Fund's
average daily net assets.
PORTFOLIO MANAGERS
The portfolio managers of the Fund are Clifford Noreen, Senior Managing Director
of the Manager, and Jill Fields, Managing Director of the Manager. From 1985
through 1999, Mr. Noreen had been employed by Massachusetts Mutual Life
Insurance Company ("MassMutual"), the corporate parent of the Manager. From 1997
through 1999, Ms. Fields has been employed by MassMutual. Prior to 1997, she was
Director of Corporate Bond Research at ITT Hartford Insurance Companies.
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<PAGE>
INVESTING IN THE FUND
HOW TO OPEN AN ACCOUNT
Before investing in the Fund you will need to open an account with The DLB Fund
Group. You can open an account by completing and returning to The DLB Fund Group
a signed account application. Account applications are available from The DLB
Fund Group, whose address and toll free number are provided on the back of this
prospectus.
When completing the application, please be sure to provide your social security
number or taxpayer identification number on the application and designate the
account(s) to which funds or securities may be transferred upon redemption.
Designation of additional accounts or any change in the accounts originally
designated must be made by you in writing, with the signature medallion
guaranteed by a commercial bank, a member firm of a domestic securities exchange
or one of certain other financial institutions.
HOW TO PURCHASE SHARES
You may purchase shares of the Fund directly from The DLB Fund Group on any day
when the NYSE is open for business. The NYSE is closed on weekend days, national
holidays and Good Friday. Before placing an order for Fund shares, you should
call the Manager at 1-888-722-2766, Attn: The DLB Fund Group Coordinator.
PURCHASE PRICE: The purchase price of a share of the Fund is the net asset value
next determined after your purchase order is received in good order. Generally,
a purchase order is in good order if the Fund's Transfer Agent, Investors Bank &
Trust Company ("IBT"), has received the consideration for the Fund shares before
the relevant deadline, which is described below under "Purchases."
In most cases, if the Fund's Transfer Agent, IBT, does not receive the
consideration before the relevant deadline, The DLB Fund Group will not consider
the purchase to be in good order. This means that you must resubmit the purchase
order and consideration on the following business day, unless IBT can credit the
consideration to the account of the Fund. The Fund does not impose a sales
charge on purchases.
MINIMUM INVESTMENT: The minimum initial investment in the Fund is $100,000, and
the minimum for each subsequent investment is $10,000. If you open multiple
accounts with The DLB Fund Group, you may aggregate your investments in the
Funds to satisfy the minimum investment requirement. You may also satisfy the
minimum initial investment requirement by making an initial investment of at
least $25,000 in the Fund and investing the remainder of the $100,000 minimum
initial investment within 12 months.
PURCHASES: You may purchase shares of a Fund utilizing the following methods:
CASH (by wire transfer only). You must transmit all federal funds to IBT
to Account No. 777777722 for the account of the Fund. ("Federal funds"
are monies credited to IBT's account with the Federal Reserve Bank of
Boston.) The deadline for wiring federal funds is 2:00 p.m. Eastern
time.
SECURITIES (only by transferring common stocks on deposit at The
Depository Trust Company ("DTC") or appropriate fixed income securities,
which the Manager has determined are acceptable). In the case of an
investment in-kind, you must place your securities on deposit at DTC by
4:00 p.m. Eastern time, the deadline for transferring those securities
to the account designated by the custodian for the Fund (IBT).
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<PAGE>
PURCHASES (CONT.): The Manager will not accept securities, in exchange for Fund
shares, unless:
o the Manager, in its sole discretion, believes the securities are
appropriate investments for the Fund. (The Manager will accept
securities, in exchange for Fund shares, for investment only and not
for resale.);
o you represent and agree that all securities offered to the Fund are not
subject to any restrictions upon their sale by the Fund under the
Securities Act of 1933, or otherwise; and
o the securities may be acquired under the investment restrictions
applicable to the Fund.
The Manager will value securities it accepts in exchange for Fund shares in
accordance with the Fund's procedures for valuation described under "How Share
Price Is Determined" as of the time of the next determination of net asset value
after acceptance. All dividends, interest, subscription or other rights that are
reflected in the market price of accepted securities at the time of valuation
become the property of the Fund and must be delivered to The DLB Fund Group upon
receipt by you from the issuer. If you purchase Fund shares in exchange for
securities, you may, if you are subject to federal income taxation, recognize a
gain or loss for federal income tax purposes, depending upon your basis in the
securities tendered. In all cases, the Manager reserves the right to reject any
particular investment.
CASH AND SECURITIES. You will need to follow the above instructions for
purchases made with a combination of cash and securities.
Purchases will be made in full and fractional shares of the Fund calculated to
three decimal places. The DLB Fund Group will send to shareholders written
confirmation (including a statement of shares owned) at the time of each
transaction. The DLB Fund Group reserves the right at any time to reject an
order.
HOW TO SELL SHARES
You may redeem Fund shares on any day when the NYSE is open for business.
The Fund will redeem its shares at a price equal to the net asset value per
share next determined after IBT receives the redemption request in good order. A
redemption request is in good order if it:
o includes the correct name in which shares are registered, your account
number and the number of shares or the dollar amount of shares to be
redeemed; and
o is signed correctly in accordance with the form of registration.
(Persons acting in a fiduciary capacity, or on behalf of a corporation,
partnership or trust, must specify, in full, the capacity in which they
are acting.)
There is no redemption fee for the Fund.
REDEMPTION REQUESTS: You should send redemption requests to The DLB Fund Group.
To help facilitate the timely payment of redemption proceeds, you should
telephone the Manager at 1-888-722-2766, Attn: The DLB Fund Group Coordinator,
at least two days before submitting a request.
PAYMENT OF REDEMPTION PROCEEDS: The DLB Fund Group will make payment on
redemption as promptly as possible and in any event within seven days after IBT
receives your redemption request in good order.
CASH PAYMENTS. The DLB Fund Group will make cash payments generally by
transfer of Federal funds for payment into your account the next business
day following the redemption request.
IN KIND. If the Manager determines, in its sole discretion, that it would
be detrimental to the best interests of the remaining shareholders of the
Fund to make payment wholly or partly in cash, the Fund may
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<PAGE>
IN KIND (CONT.). instead pay the redemption price in whole or in part by a
distribution in kind of readily marketable securities held by the Fund. The
DLB Fund Group will transfer and deliver in-kind redemptions as you direct.
The Fund will value securities used to redeem Fund shares in kind in
accordance with the Fund's procedures for valuation described under "How
Share Price Is Determined." You generally will incur brokerage charges on
the sale of any securities that you receive in payment of redemptions.
The Fund may suspend the right of redemption and may postpone payment for more
than seven days when the NYSE is closed for reasons other than weekends or
holidays, or if permitted by the rules of the Securities and Exchange Commission
during periods when trading on the NYSE is restricted or during an emergency
which makes it reasonably impracticable for the Fund to dispose of its
securities or fairly to determine the value of the net assets of the Fund, or
during any other period permitted by the Securities and Exchange Commission for
the protection of investors.
HOW SHARE PRICE IS DETERMINED
The DLB Fund Group determines the net asset value of a share of the Fund at 4:15
p.m., Eastern time, on each day that the NYSE is open. The DLB Fund Group does
not accept orders or compute the Fund's net asset value on days when the NYSE is
closed.
The DLB Fund Group determines the net asset value per share for the Fund by
dividing the total value of the Fund's portfolio investments and other assets,
less any liabilities, by the total outstanding shares of the Fund.
The DLB Fund Group values portfolio securities based on market value or, where
market quotations are not readily available, based on fair value. More
specifically, The DLB Fund Group values portfolio securities (including options
and futures contracts) for which market quotations are available at the last
quoted sale price, or, if there is no reported sale, at the closing bid price.
The DLB Fund Group values securities traded in the over-the-counter market at
the most recent bid price as obtained from one or more dealers that make markets
in the securities. For portfolio securities that are traded both in the
over-the-counter market and on one or more stock exchanges, The DLB Fund Group
will value the securities according to the broadest and most representative
market. The DLB Fund Group values unlisted securities for which market
quotations are not readily available at the most recent quoted bid price.
Short-term debt securities with a remaining maturity of 60 days or less will be
valued at amortized cost, unless conditions dictate otherwise. Illiquid
securities or restricted securities will be valued at fair value based on
information supplied by one or more brokers. Other assets for which no
quotations are readily available are valued at fair value as determined in good
faith in accordance with procedures adopted by The DLB Fund Group's Board of
Trustees. Determination of fair value will be based upon those factors as are
deemed relevant under the circumstances, including the financial condition and
operating results of the issuer, recent third party transactions (actual or
proposed) relating to such securities and, in extreme cases, the liquidation
value of the issuer. The use of fair value pricing by the Fund may cause the net
asset value of its shares to differ significantly from the net asset value that
would be calculated using current market values.
FOREIGN SECURITIES: Because of time zone differences, foreign exchanges and
securities markets will usually be closed before the closing of the NYSE.
Therefore, The DLB Fund Group will determine the value of foreign securities as
of the closing of those exchanges and securities markets. Events affecting the
values of foreign securities, however, may occasionally occur between the
closings of such exchanges and securities markets and the time the Fund
determines its net asset value. If an event materially affecting the value of
foreign securities occurs during this period, then The
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FOREIGN SECURITIES (CONT.): DLB Fund Group will value such securities at fair
value as determined in good faith in accordance with procedures adopted by the
Trustees. In addition, the Fund may hold portfolio securities that are primarily
listed on foreign exchanges that trade on weekends or other days when the Fund
does not accept orders or price its shares. As a result, the value of any such
securities held by the Fund may change on days when you will not be able to
purchase or redeem the Fund's shares.
The prices of foreign securities are quoted in foreign currencies. The DLB Fund
Group converts the values of foreign currencies into U.S. dollars at the rate of
exchange prevailing at the time it determines net asset value. Changes in the
exchange rate, therefore, will affect the net asset value of shares of the Fund
even when there has been no change in the values of the foreign securities
measured in terms of the currency in which they are denominated.
DISTRIBUTION AND SERVICE
(RULE 12B-1) PLAN
The DLB Fund Group has adopted a distribution and service plan ("Plan") for the
Fund under Rule 12b-1 of the Investment Company Act of 1940. The Trustees,
however, have no intention of implementing the Plan during The DLB Fund Group's
current fiscal year. The purposes of the Plan, if implemented, would be to
compensate and/or reimburse investment dealers and other persons for services
provided and expenses incurred in promoting sales of shares, reducing
redemptions or improving services provided to shareholders by such dealers and
other persons. The Plan would permit the Fund to pay an annual asset-based
charge of up to 0.50% for these purposes, subject to the authority of the
Trustees to reduce the amount of payments or to suspend the Plan for such
periods as they may determine. Subject to these limitations, the Trustees would
determine the amount of payments under each Plan, and the specific purposes for
which they were made.
PRINICIPAL UNDERWRITER
Babson Securities Corp. ("BSC") serves as the principal underwriter of the Fund.
In its capacity as principal underwriter, BSC solicits applications for the
purchase of shares of the Fund and may assist investors in transmitting
applications to the Fund or its agent. BSC does not, however, buy or sell or
accept orders for the purchase or sale of shares of the Fund.
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<PAGE>
DISTRIBUTIONS
The Fund intends to pay out as dividends substantially all of its net investment
income (which comes from dividends and any interest it receives from its
investments and net short-term capital gains). The Fund also intends to
distribute substantially all of its net long-term capital gains, if any, after
giving effect to any available capital loss carryovers. The Fund's policy is to
declare and pay distributions of its net investment income monthly. The Fund
also intends to distribute net short-term capital gains and net long-term
capital gains at least annually.
The Fund will pay all dividends and/or distributions in shares of the Fund, at
net asset value, unless you elect to receive cash. You may make this election by
marking the appropriate box on the application form or by writing to The DLB
Fund Group.
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<PAGE>
TAXES
The following is a general summary of the federal income tax consequences for
the Fund and shareholders who are U.S. citizens or residents or domestic
corporations. You should consult your own tax advisor about the tax consequences
of investments in the Fund in light of your particular tax situation. You should
also consult your own tax advisor about consequences under foreign, local or
other applicable tax laws.
The Fund is treated as a separate taxable entity for federal income tax
purposes. The Fund intends to qualify each year as a regulated investment
company under SubchapterM of the Internal Revenue Code of 1986, as amended. By
so qualifying, the Fund itself will not pay federal income tax on the income and
gain distributed annually to its shareholders. Distributions of ordinary income
and short-term capital gains, whether received in cash or reinvested shares,
will be taxable as ordinary income to shareholders subject to federal income
tax. Designated distributions of long-term capital gains are taxable as such,
regardless of how long a shareholder may have owned shares in the Fund or
whether the distributions are received in cash or in reinvested shares.
Distributions are taxable to a shareholder of the Fund even if they are paid
from income or gains earned by the Fund prior to the shareholder's investment
(and thus were included in the price paid by the shareholder).
The sale, exchange or redemption of Fund shares may give rise to a gain or loss.
In general, any gain realized upon a taxable disposition of shares will be
treated as long-term capital gain if the shares have been held for more than 12
months. Otherwise, the gain on the sale, exchange or redemption of Fund shares
will be treated as short-term capital gain. In general, any loss realized upon a
taxable disposition of shares will be treated as long-term capital loss if the
shares have been held for more than 12 months, and otherwise as short-term
capital loss. Any loss recognized on the sale or disposition of shares of the
Fund held for six months or less will be treated as long-term capital loss to
the extent of any long-term capital gain distributions received by a shareholder
with respect to those shares of the Fund. All or a portion of any loss realized
upon a taxable disposition of the Fund's shares will be disallowed if other
shares of the Fund or another Fund of The DLB Fund Group are purchased within 30
days before or after the disposition. In such a case, the basis of the newly
purchased shares will be adjusted to reflect the disallowed loss.
The DLB Fund Group will provide federal tax information annually, including
information about dividends and distributions paid during the preceding year.
FOREIGN WITHHOLDING TAXES: The investments of the Fund in foreign securities may
be subject to foreign withholding taxes. In that case, the Fund's yields on
those securities would be decreased. Shareholders may be entitled to claim a
credit or deduction with respect to foreign taxes. In addition, the Fund's
investments in foreign securities or foreign currencies may increase or
accelerate the Fund's recognition of ordinary income and may affect the timing
or amount of the Fund's distributions.
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<PAGE>
APPENDIX A
ADDITIONAL INVESTMENT POLICIES AND RISK CONSIDERATIONS
The Fund may invest in a wide range of investments and engage in various
investment transactions and practices, in addition to the Fund's principal
investment strategies described in the section entitled "About the Fund." These
practices are pursuant to non-fundamental policies and therefore may be changed
by the Board of Trustees of The DLB Fund Group without the consent of
shareholders. Some of the more significant practices and associated risks are
discussed below. You will find additional information about the Fund's
investment policies and associated risks in the Statement of Additional
Information.
CASH RESERVES
The Fund generally intends to stay fully invested in the types of securities
that represent its principal investment strategies. However, the Fund may hold a
portion of its assets in cash, money market instruments or other high-quality
short-term debt obligations readily changeable to cash, such as treasury bills,
commercial paper or repurchase agreements, at the discretion of the Manager to
provide for expenses and anticipated redemption payments and to carry out an
orderly investment program in accordance with the Fund's investment policies.
CHANGE IN CAPITALIZATION /
CHANGE IN CREDIT RATING
The Fund may continue to hold securities that decrease in quality after the
Fund's investment in those securities if, in the opinion of the Manager, the
investment remains appropriate under the circumstances.
CHANGES TO INVESTMENT OBJECTIVES
Except for policies identified as "fundamental" in this Prospectus or the
Statement of Additional Information, the Trustees may change the investment
objective and policies of the Fund without shareholder approval. Any such change
may result in the Fund having an investment objective and policies different
from the objective and policies that you considered appropriate when you
invested in the Fund. The Fund will notify you of any changes in its investment
objective or policies through a revised prospectus or other written
communication.
ASSET-BACKED SECURITIES RISK
Asset-backed securities are securities that are backed by pools of obligations,
such as pools of automobile loans, educational loans and credit card
receivables, both secured and unsecured. Asset-backed securities are subject to
the risk of prepayment by borrowers, which is more likely to occur when interest
rates fall. As with fixed income securities generally, asset-backed securities
present the risk that the issuer will default on principal and interest
payments. The holder of an asset-backed security may experience difficulty in
enforcing rights against assets underlying the security when an issuer defaults.
In addition, any or all of the following events may cause holders of
asset-backed securities to experience delays in payments on the securities,
which may result in losses to the Fund when it holds these securities:
o unanticipated legal or administrative costs of enforcing the contracts
on the assets;
o depreciation of the collateral securing the contracts; or
o damage to or destruction of the collateral securing the contracts.
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<PAGE>
FOREIGN ISSUER RISK
Investments in the securities of foreign companies and securities traded
primarily in foreign markets are generally less liquid and at times more
volatile than investments in the securities of domestic companies and securities
traded in domestic markets. They also involve a variety of special risks,
including risks of:
o less rigorous accounting, auditing and financial reporting standards than
are customary in the United States
o adverse political or regulatory developments
o higher trading and settlement costs
o limited public information
o limited, slower or more costly legal remedies
o special tax considerations
o a company borrowing in currencies different from its revenue stream
o communications betwen the United States and foreign countries being less
reliable than within the United States
o the Fund's agent having difficulty keeping informed about corporate actions
which may affect the prices of portfolio securities
If the Fund concentrates a substantial amount of its assets in issuers located
in a single country or a limited number of countries, it assumes the risk that
economic, political and social conditions in that country or those countries
will have a significant impact on its investment performance.
STATEMENT OF ADDITIONAL INFORMATION
In the Statement of Additional Information you will find a list of fundamental
and non-fundamental investment restrictions applicable to the Fund. The
Statement of Additional Information also describes the following investment
techniques and practices that may be used by the Fund.
o Money Market Instruments
o Preferred Stocks
o Convertible Securities
o When-Issued Securities
o Restricted / Illiquid Securities
o Repurchase Agreements
o Portfolio Turnover
o Lending of Portfolio Securities
o Derivatives
o Warrants and Rights
o Foreign Securities
o Adjustable Rate Securities
o Interest Rate Swaps and Related Instruments
o Strips and Residuals
o Zero Coupon Securities
o Loans and Other Direct Debt Instruments
o Asset-backed securities
o Options and Futures
YEAR 2000 ISSUE
Like other businesses and goverments around the world, the Fund could be
adversely affected if the computer systems used by its service providers, the
companies with which it does business, and the companies in which it invests
have problems processing date-related information from and after January 1,
2000. This is commonly known as the "Year 2000 issue."
The Fund, which has no application systems of its own, is working diligently
with its service providers (including the Manager and IBT) to identify and
remedy any Year 2000 issues. Furthermore, the Manager typically considers a
company's efforts to address the Year 2000 issue as a factor when making
investment decisions for the Fund. The Fund does not anticipate that the Year
2000 issue will have a significant negative effect on an investment in the Fund.
However, the Fund can give no assurance that its actions and those of its
service providers will preclude all significant negative effects.
-16-
<PAGE>
APPENDIX B
DESCRIPTION OF BOND RATINGS ASSIGNED BY STANDARD & POOR'S
AND MOODY'S INVESTORS SERVICE, INC.
STANDARD & POOR'S
AAA: An obligation rated 'AAA' has the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.
AA: An obligation rated 'AA' differs from the highest rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A: An obligation rated 'A' is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than obligations in higher
rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB: An obligation rated 'BBB' exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation. Obligations rated 'BB', 'B', 'CCC', 'CC', and 'C' are regarded as
having significant speculative characteristics. 'BB' indicates the least degree
of speculation and 'C' the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
BB: An obligation rated 'BB' is less vulnerable to nonpayment that other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
B: An obligation rated 'B' is more vulnerable to nonpayment than obligations
rated 'BB', but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
CCC: An obligation rated 'CCC' is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC: An obligation rated 'CC' is currently highly vulnerable to nonpayment.
C: A subordinated debt or preferred stock obligation rated 'C' is CURRENTLY
HIGHLY VULNERABLE to nonpayment. The 'C' rating may be used to cover a situation
where a bankruptcy petition has been filed or similar action taken, but payments
on this obligation are being continued. A 'C' also will be assigned to a
preferred stock issue in arrears on dividends or sinking fund payments, but that
is currently paying.
D: An obligation rated 'D' is in payment default. The 'D' rating category is
used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grace period. The 'D' rating also will be
used upon the filing of a bankruptcy petition or the taking of a similar action
if payments on an obligation are jeopardized.
r: This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the
-17-
<PAGE>
STANDARD & POOR'S (CONT.)
r (cont.): credit rating. Examples include: obligations liked or indexed to
equities, currencies, or commodities; obligations exposed to severe prepayment
risk-such as interest-only or principal-only mortgage securities; and
obligations with unusually risky interest terms, such as inverse floaters.
N.R.: This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular obligation as a matter of policy.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
MOODY'S INVESTORS SERVICE, INC.
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be high quality by all standards.
Together with the Aaa group they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
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<PAGE>
MOODY'S INVESTORS SERVICE, INC. (CONT.)
NOTE: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa through Caa. The modifier 1 indicates that the obligation
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of
that generic rating category.
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<PAGE>
THE DLB FUND GROUP
ONE MEMORIAL DRIVE
CAMBRIDGE, MASSACHUSETTS 02142
LEARNING MORE ABOUT THE FUND
You can learn more about the Fund in The DLB Fund Group by reading the STATEMENT
OF ADDITIONAL INFORMATION (SAI). The SAI is available free upon request. The SAI
includes additional information about the Fund's investment policies, risks and
operations. The SAI is incorporated by reference into this Prospectus (WHICH
MEANS IT IS LEGALLY CONSIDERED A PART OF THIS PROSPECTUS).
HOW TO OBTAIN MORE INFORMATION
From The DLB Fund Group: You may request information about the Fund (including
the SAI) or make shareholder inquiries by any of the following methods:
BY REGULAR MAIL OR OVERNIGHT COURIER
The DLB Fund Group
c/o David L. Babson & Co. Inc.
Marketing Department
Attention: The DLB Fund
Group Coordinator
One Memorial Drive
Cambridge, Massachusetts 02142
BY TELEPHONE
1-888-722-2766
Call for account or Fund information
Monday through Friday 9 a.m. to 5 p.m.
(Eastern time).
BY TELEFAX
1-617-494-1511
FROM THE SEC: You may review and copy information about the Fund (including the
SAI) at the SEC's Public Reference Room in Washington, D.C. Call 202-942-8090
for information regarding the operation of the SEC's public reference room. You
may obtain copies of this information, upon payment of a copying fee, by writing
to the SEC's Public Reference Section, Washington, DC 20549-0102, or via e-mail
([email protected]). Alternatively, if you have access to the Internet, you may
obtain information about the Fund from the SEC's Internet site at
http://www.sec.gov.
Investment Company Act File Number 811-08690
<PAGE>
THE DLB FUND GROUP
DLB FIXED INCOME FUND
DLB VALUE FUND
DLB GROWTH FUND
DLB DISCIPLINED GROWTH FUND
DLB ENTERPRISE III FUND
DLB MICRO CAPITALIZATION FUND
DLB GLOBAL SMALL CAPITALIZATION FUND
DLB STEWART IVORY INTERNATIONAL FUND
DLB STEWART IVORY EMERGING MARKETS FUND
DLB HIGH YIELD FUND
STATEMENT OF ADDITIONAL INFORMATION
February 29, 2000, as revised March __, 2000
This Statement of Additional Information is not a prospectus. This
Statement of Additional Information relates to the prospectuses of The DLB Fund
Group dated on or after October 29, 1999, as amended from time to time, and
should be read in conjunction therewith. Each reference to the term "Prospectus"
in this Statement of Additional Information shall include the DLB Fund Group's
prospectuses relating to the DLB Fixed Income Fund, the DLB Value Fund, the DLB
Growth Fund, the DLB Disciplined Growth Fund, the DLB Enterprise III Fund, the
DLB Micro Capitalization Fund, the DLB Global Small Capitalization Fund, the DLB
Stewart Ivory International Fund, the DLB Stewart Ivory Emerging Markets Fund
and the DLB High Yield Fund (collectively, the "Funds").
The DLB Fund Group's audited financial statements for the fiscal year
ended October 31, 1999 included in the Funds' Annual Reports are hereby
incorporated into this Statement of Additional Information by reference. A copy
of the Prospectus and each Fund's most recent Annual Report may be obtained free
of charge by writing The DLB Fund Group, c/o David L. Babson & Co. Inc.,
Marketing Department, Attention: The DLB Fund Group Coordinator, One Memorial
Drive, Cambridge, Massachusetts 02142, or by telephoning 1-888-722-2766.
<PAGE>
TABLE OF CONTENTS
INVESTMENT OBJECTIVES AND POLICIES AND ASSOCIATED RISKS......................1
INVESTMENT RESTRICTIONS......................................................1
INCOME DIVIDENDS, DISTRIBUTIONS AND TAX STATUS...............................4
MANAGEMENT OF THE TRUST......................................................8
INVESTMENT ADVISORY AND OTHER SERVICES......................................11
ADDITIONAL INVESTMENT PRACTICES OF THE FUNDS................................14
ADDITIONAL INVESTMENT PRACTICES OF THE FIXED INCOME FUND
AND THE HIGH YIELD FUND.....................................................22
ADDITIONAL INVESTMENT PRACTICES OF THE DISCIPLINED GROWTH FUND
AND THE HIGH YIELD FUND -- FUTURES AND OPTIONS..............................30
ADDITIONAL INVESTMENT PRACTICES OF THE GLOBAL SMALL CAP FUND................35
ADDITIONAL INVESTMENT PRACTICES OF THE GLOBAL SMALL CAP FUND,
THE INTERNATIONAL FUND AND THE EMERGING MARKETS FUND........................36
PORTFOLIO TRANSACTIONS......................................................37
DESCRIPTION OF THE TRUST AND OWNERSHIP OF SHARES............................42
INVESTMENT PERFORMANCE......................................................48
DETERMINATION OF NET ASSET VALUE............................................50
EXPERTS.....................................................................51
REPORT OF INDEPENDENT AUDITORS AND FINANCIAL STATEMENTS.....................51
APPENDIX....................................................................52
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES AND ASSOCIATED RISKS
The investment objective and policies of each of the DLB Fixed Income
Fund (the "Fixed Income Fund"), the DLB Value Fund (the "Value Fund"), the DLB
Growth Fund (the "Growth Fund"), the DLB Disciplined Growth Fund, which was
formerly known as the DLB Quantitative Equity Fund (the "Disciplined Growth
Fund"), the DLB Enterprise III Fund, which was formerly known as the DLB Mid
Capitalization Fund (the "Enterprise III Fund"), the DLB Micro Capitalization
Fund (the "Micro Cap Fund"), the DLB Global Small Capitalization Fund (the
"Global Small Cap Fund"), the DLB Stewart Ivory International Fund (the
"International Fund"), the DLB Stewart Ivory Emerging Markets Fund (the
"Emerging Markets Fund") and the DLB High Yield Fund (the "High Yield Fund")
(each a "Fund," and collectively the "Funds") of The DLB Fund Group (the
"Trust") are set forth in the Prospectus.
INVESTMENT RESTRICTIONS
Without a vote of the majority of the outstanding voting securities of
the relevant Fund, the Trust will not take any of the following actions with
respect to any Fund:
(1) Borrow money in excess of 10% (33% in the case of the
Growth Fund, Micro Cap Fund, International Fund, Emerging Markets Fund
and High Yield Fund) of the value (taken at the lower of cost or
current value) of the Fund's total assets (not including the amount
borrowed) at the time the borrowing is made, and then only from banks
for temporary, extraordinary or emergency purposes, except that the
Fund may borrow through reverse repurchase agreements or dollar rolls
up to 33% of the value of the Fund's total assets. Such borrowings
(other than borrowings relating to reverse repurchase agreements and
dollar rolls) will be repaid before any investments are purchased.
(2) Underwrite securities issued by other persons except to
the extent that, in connection with the disposition of its portfolio
investments, it may be deemed to be an underwriter under federal
securities laws.
(3) Purchase or sell real estate (including real estate
limited partnerships), although it may purchase securities of issuers
which deal in real estate, including securities of real estate
investment trusts, securities which represent interests in real estate
and securities which are secured by interests in real estate, and the
Fund may acquire and dispose of real estate or interests in real estate
acquired through the exercise of its rights as holder of debt
obligations secured by real estate or interests therein or for use as
office space for the Fund.
(4) Make loans, except by purchase of debt obligations
(including non-publicly traded debt obligations), by entering into
repurchase agreements or
<PAGE>
through the lending of the Fund's portfolio securities. Loans of
portfolio securities may be made with respect to up to 100% of the
Fund's assets in the case of each Fund.
(5) Issue any senior security (as that term is defined in the
Investment Company Act of 1940 (the "1940 Act")), if such issuance is
specifically prohibited by the 1940 Act or the rules and regulations
promulgated thereunder. (The Funds have no intention of issuing senior
securities except as set forth in Restriction 1 above.)
(6) Invest 25% or more of the value of its total assets in
securities of issuers in any one industry. (Securities issued or
guaranteed as to principal or interest by the U.S. Government or its
agencies or instrumentalities are not considered to represent
industries.)
(7) Purchase or sell commodities or commodity contracts,
including futures contracts, except that the Disciplined Growth Fund
and the High Yield Fund may purchase and sell futures contracts,
options (including options on commodities and commodity contracts) and
other financial instruments and may enter into foreign exchange
transactions.
Restrictions (1) through (7) above are deemed to be "fundamental"
investment policies.
In addition, it is contrary to the present policy of each Fund to:
(a) Invest in (i) securities which at the time of such
investment are not readily marketable, (ii) securities the disposition
of which is restricted under federal securities laws, excluding
restricted securities that have been determined by the Trustees of the
Trust (or the person designated by them to make such determination) to
be readily marketable, and (iii) repurchase agreements maturing in more
than seven days if, as a result, more than 15% of the Fund's net assets
(taken at current value) would then be invested in securities described
in (i), (ii) and (iii) above.
It is also contrary to the present policy of the Fixed Income Fund, the
Value Fund, the Disciplined Growth Fund and the Global Small Cap Fund
to:
(b) Purchase securities on margin, except such short-term
credits as may be necessary for the clearance of purchases and sales of
securities.
(c) Make short sales of securities or maintain a short
position for the Fund's account unless at all times when a short
position is open the Fund owns an equal amount of such securities or
owns securities which, without payment of any
2
<PAGE>
further consideration, are convertible into or exchangeable for
securities of the same issue as, and equal in amount to, the securities
sold short. The Funds have no current intention in the coming year of
engaging in short sales or maintaining a short position.
(d) Invest in securities of other investment companies, except
by purchase in the open market involving only customary brokers'
commissions, or in connection with mergers, consolidations or
reorganizations. For purposes of this restriction, foreign banks or
their agents or subsidiaries are not considered investment companies.
(e) Acquire more than 10% of the voting securities of any
issuer.
(f) Invest in warrants or rights (other than warrants or
rights acquired by the Fund as a part of a unit or attached to
securities at the time of purchase), except that the Fund may invest in
such warrants or rights so long as the aggregate value thereof (taken
at the lower of cost or market) does not exceed 5% of the value of the
Fund's total assets and so long as no more than 2% of its total assets
are invested in warrants that are not listed on the New York Stock
Exchange or the American Stock Exchange.
(g) Buy or sell oil, gas or other mineral leases, rights or
royalty contracts.
(h) Make investments for the purpose of gaining control of a
company's management.
Unlike Restrictions (1) through (7) above, Restrictions (a) through (h)
above are deemed to be "non-fundamental" investment policies of the applicable
Funds and therefore may be changed by the Trust's Trustees without shareholder
approval.
Except as otherwise indicated in Restriction 1 or Restriction (a)
above, all percentage limitations on investments set forth herein and in the
Prospectus will apply at the time of the making of an investment and shall not
be considered violated unless an excess or deficiency occurs or exists
immediately after and as a result of such investment.
The phrase "shareholder approval," as used in the Prospectus, and the
phrase "vote of a majority of the outstanding voting securities," as used herein
with respect to a Fund, means the affirmative vote of the lesser of (1) more
than 50% of the outstanding shares of that Fund, or (2) 67% or more of the
shares of that Fund present at a meeting if more than 50% of the outstanding
shares are represented at the meeting in person or by proxy.
3
<PAGE>
INCOME DIVIDENDS, DISTRIBUTIONS AND TAX STATUS
The tax status of each Fund and the distributions that it may make are
summarized in the Prospectus under the headings "Distributions" and "Taxes."
Each Fund intends to pay out substantially all of its ordinary income and net
short-term capital gains, and to distribute substantially all of its net capital
gain, if any, after giving effect to any available capital loss carry-over. Net
capital gain is the excess of net long-term capital gain over net short-term
capital loss.
Each Fund intends to qualify each year as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). In order so to qualify and to qualify for the favorable tax treatment
accorded regulated investment companies and their shareholders, the Fund must,
among other things, (a) derive at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, and gains from the
sale of stock, securities and foreign currencies, or other income (including but
not limited to gains from options, futures or firm commitments) derived with
respect to its business of investing in such stock, securities or currencies;
(b) distribute at least 90% of its dividend, interest and certain other income
(including, in general, short-term capital gains) each year; and (c) diversify
its holdings so that at the end of each fiscal quarter (i) at least 50% of the
market value of the Fund's assets is represented by cash items, U.S. Government
securities, securities of other regulated investment companies, and other
securities, limited in respect of any one issuer to a value not greater than 5%
of the value of the Fund's total assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its assets
is invested in the securities (other than those of the U.S. Government or other
regulated investment companies) of any one issuer or of two or more issuers
which the Fund controls and which are engaged in the same, similar or related
trades or businesses. So long as a Fund qualifies for treatment as a regulated
investment company, the Fund will not be subject to federal income tax on income
paid to its shareholders in the form of dividends or capital gain distributions.
If a Fund failed to qualify as a regulated investment company in any
taxable year, the Fund would be subject to tax on its taxable income at
corporate rates, and all distributions from earnings and profits, including any
distributions of net tax-exempt income and net long-term capital gains, would be
taxable to shareholders as ordinary income. In addition, the Fund could be
required to recognize unrealized gains, pay substantial taxes and interest and
make substantial distributions before requalifying for taxation as a regulated
investment company.
In general, all dividends derived from ordinary income and short-term
capital gain are taxable to investors as ordinary income (subject to special
rules concerning the availability of the dividends-received deduction for
corporations) and distributions of long-term capital gains are taxable to
investors as such, regardless of how long a
4
<PAGE>
shareholder may have owned shares in the relevant Fund or whether such
distributions are received in shares or cash. Tax exempt organizations or
entities will generally not be subject to federal income tax on dividends or
distributions from a Fund, except certain organizations or entities, including
private foundations, social clubs, and others, which may be subject to tax on
dividends or capital gains. Each organization or entity should review its own
circumstances and the federal tax treatment of its income.
Dividends and distributions on each Fund's shares are generally subject
to federal income tax as described herein to the extent they do not exceed the
Fund's realized income and gains, even though such dividends and distributions
may economically represent a return of a particular shareholder's investment.
Such distributions are likely to occur in respect of shares purchased at a time
when the Fund's net asset value reflects gains that are either unrealized, or
realized but not distributed. Such realized gains may be required to be
distributed even when a Fund's net asset value also reflects unrealized losses.
Distributions are taxable to a shareholder of a Fund even if they are paid from
income or gains earned by the Fund prior to the shareholder's investment (and
thus were included in the price paid by the shareholder). A distribution paid to
shareholders in January generally is deemed to have been received by
shareholders on December 31 of the preceding year, if the distribution was
declared and payable to shareholders of record on a date in October, November or
December of that preceding year.
An excise tax at the rate of 4% will be imposed on the excess, if any,
of each Fund's "required distribution" over its actual distribution in any
calendar year. Generally, the "required distribution" is 98% of the Fund's
ordinary income for the calendar year plus 98% of its capital gain net income
recognized during the one-year period ending on October 31 (or December 31, if
the Fund so elects) plus undistributed amounts from prior years. Each Fund
intends to make distributions sufficient to avoid imposition of the excise tax.
If a Fund engages in certain transactions, such as firm commitments and
hedging transactions, including hedging transactions in options, futures
contracts, and straddles, or other similar transactions, it will be subject to
special tax rules (including constructive sale, mark-to-market, straddle, wash
sale, and short sale rules), the effect of which may be to accelerate income,
defer losses, cause adjustments in the holding periods of the Fund's securities
and convert short-term capital gains or losses into long-term capital gains or
losses. Such transactions may therefore affect the amount, timing and character
of distributions to shareholders.
A Fund's investment in securities issued at a discount and certain
other obligations will (and investments in securities purchased at a discount
may) require the Fund to accrue and distribute income and gains not yet
received. In such cases, the Fund may be required to sell assets (including when
it is not advantageous to do so) to generate
5
<PAGE>
the cash necessary to distribute as dividends to its shareholders all of its
income and gains and therefore to eliminate any tax liability at the Fund level.
Each Fund's transactions, if any, in foreign currencies are likely to
result in a difference between the Fund's book income and taxable income. This
difference may cause a portion of the Fund's income distributions to constitute
a return of capital for tax purposes or require the Fund to make distributions
exceeding book income to avoid excise tax liability and to qualify as a
regulated investment company.
Investment by a Fund in certain "passive foreign investment companies"
could subject the Fund to a U.S. federal income tax or other charge on
distributions received from, or the sale of its investment in, such a company,
which tax could not be eliminated by making distributions to Fund shareholders.
To avoid this treatment, a Fund may elect to mark to market annually all of its
stock in a passive foreign investment company. Alternatively, if a Fund elects
to treat a passive foreign investment company as a "qualified electing fund,"
different rules would apply, although the Funds do not currently expect to be in
the position to make such elections.
The dividends-received deduction for corporations will generally apply
to a Fund's dividends paid from investment income to the extent derived from
dividends received by the Fund from domestic corporations that would be entitled
to such deduction in the hands of the Fund if it were a regular corporation. A
corporate shareholder will only be eligible to claim a dividends-received
deduction with respect to a dividend from the Fund if the shareholder held its
shares on the ex-dividend date and for at least 45 more days during the 90-day
period surrounding the ex-dividend date. The dividends-received deduction is not
available to Subchapter S corporations.
BACK-UP WITHHOLDING. The back-up withholding rules set forth below do
not apply to tax exempt entities or corporations that furnish the Trust with an
appropriate certification. For other shareholders, however, the Trust is
generally required to withhold and remit to the U.S. Treasury 31% of all
distributions, whether distributed in cash or reinvested in shares, and 31% of
the proceeds of any redemption paid or credited to the shareholder's account if
an incorrect or no taxpayer identification number has been provided, where
appropriate certification has not been provided for a foreign shareholder, or
where the Trust is notified that the shareholder has underreported income in the
past (or the shareholder fails to certify that he is not subject to such
withholding). The back-up withholding is not an additional tax and is creditable
against a shareholder's tax liability. Special withholding rules, described
below, may apply to foreign shareholders.
FOREIGN WITHHOLDING TAXES. Certain of the Funds that invest in foreign
securities may be subject to foreign withholding taxes on income and gains
derived from foreign investments. Such taxes would reduce the yield on the
Fund's investments, but,
6
<PAGE>
as discussed below, may be taken as either a deduction or a credit by U.S.
investors if the Fund makes the election described below.
If, at the end of the fiscal year, more than 50% of the total assets of
any Fund are comprised of stock or securities of foreign corporations, the Trust
intends to make an election with respect to the relevant Fund which allows
shareholders whose income from the Fund is subject to U.S. taxation at the
graduated rates applicable to U.S. citizens, residents or domestic corporations
to claim a foreign tax credit or deduction (but not both) on their U.S. income
tax return. In such case, the amount of qualified foreign income taxes paid by
the Fund would be treated as additional income to Fund shareholders from
non-U.S. sources and as foreign taxes paid by Fund shareholders. Investors
should consult their tax advisors for further information relating to the
foreign tax credit and deduction, which are subject to certain restrictions and
limitations (including with respect to a foreign tax credit, a holding period
requirement). Shareholders of any of the Funds whose income from the Fund is not
subject to U.S. taxation at the graduated rates applicable to U.S. citizens,
residents or domestic corporations may receive substantially different tax
treatment of distributions by the relevant Fund, and may be disadvantaged as a
result of the election described in this paragraph. Organizations that are
exempt from U.S. taxation will not be affected by the election described above.
WITHHOLDING ON DISTRIBUTIONS TO FOREIGN INVESTORS. Dividend
distributions (including in general distributions derived from short-term
capital gains, dividends and interest) are in general subject to a U.S.
withholding tax of 30% when paid to a non-resident alien individual, foreign
estate or trust, a foreign corporation, or a foreign partnership ("foreign
shareholder"). Persons who are residents in a country, such as the United
Kingdom, that has an income tax treaty with the United States may be eligible
for a reduced withholding rate (upon filing of appropriate forms), and are urged
to consult their tax advisors regarding the applicability and effect of such a
treaty. Distributions of net long-term capital gains to a foreign shareholder
and any gain realized upon the sale of Fund shares by such a shareholder will
ordinarily not be subject to U.S. taxation, unless the recipient or seller is a
nonresident alien individual who is present in the United States for more than
183 days during the taxable year, and certain other conditions apply. Foreign
shareholders with respect to whom income from a Fund is "effectively connected"
with a U.S. trade or business carried on by such shareholder, however, will in
general be subject to U.S. federal income tax on the income derived from the
Fund at the graduated rates applicable to U.S. citizens, residents or domestic
corporations, whether such income is received in cash or reinvested in shares,
and may also be subject to a branch profits tax. Again, foreign shareholders
that are residents in a country with an income tax treaty with the United States
may obtain different tax results and all foreign investors are urged to consult
their tax advisors.
7
<PAGE>
NEW WITHHOLDING TAX RULES FOR PAYMENTS AFTER 1999. The Internal Revenue
Service recently revised its regulations affecting the application to foreign
investors of the back-up withholding and withholding tax rules described above.
The new regulations will generally be effective for payments made on or after
January 1, 2000 (although transition rules will apply). In some circumstances,
the new rules will increase the certification and filing requirements imposed on
foreign investors in order to qualify for exemption from the 31% back-up
withholding tax and for reduced withholding tax rates under income tax treaties.
Foreign investors in a Fund should consult their tax advisors with respect to
the potential application of these new regulations.
MANAGEMENT OF THE TRUST
Pursuant to the Trust's Agreement and Declaration of Trust, the Board
of Trustees supervises the affairs of the Trust as conducted by David L. Babson
& Co. Inc. (the "Manager"). The Trustees and officers of the Trust and their
principal occupations during the past five years are as follows:
TRUSTEES
- --------
CHARLES E. HUGEL, age 71, serves as a Director Eldorado Bancshares,
Inc. He is also past Chairman of the Board of Trustees of Lafayette College. Mr.
Hugel is the former Chairman of Asea Brown Boveri Inc., which principally
engages in the manufacture of electrical equipment and the generation,
transmission, distribution and transportation of power, the former Chairman,
President and Chief Executive Officer of Combustion Engineering, Inc. and a
former Executive Vice President of American Telephone and Telegraph Company.
KEVEN M. MCCLINTOCK, age 38, is Executive Vice President of the
Manager. He is the former Director of Equities and Fixed Income of The Dreyfus
Corporation, which is an investment manager, and a Managing Director of the
Aeltus subsidiary, an investment manager, of Aetna, which is a provider of
insurance and financial services.
RICHARD A. NENNEMAN, age 70, is the former Editor-in-Chief of The
Christian Science Monitor and a former Senior Vice President of Girard Bank. He
currently serves as a member of the boards of various civic associations.
RICHARD J. PHELPS, age 71, is the Chief Executive Officer of Phelps
Industries, Inc., a manufacturer of rawhide dog treats. He currently serves as
Director of Superior Pet, U.K. and Superior Pet, Australia, both manufacturers
of rawhide dog treats; Bio-Comp, USA, a manufacturer of fertilizer; Stockton
Baseball Co., USA, which operates a minor league baseball team; and
Babson-Stewart Ivory International Fund, Inc., an open-end investment company.
OFFICERS
- --------
FRANK L. TARANTINO, age 55, President, is Executive Vice President,
Chief Operating Officer and Director of the Manager. Before joining the Manager,
8
<PAGE>
Mr. Tarantino was President of Liberty Securities Corporation from 1994 to 1997,
and was previously Executive Vice President of State Street Research &
Management Company.
DEANNE B. DUPONT, age 45, Treasurer, is Senior Vice President of the
Manager.
LANCE F. JAMES, age 44, Vice President, is an Executive Vice President
and Director of the Manager.
MARY WILSON KIBBE, age 44, Vice President, is an Executive Vice
President of the Manager. From 1997 through 1999, Ms. Kibbe was an Executive
Director of Massachusetts Mutual Life Insurance Company ("MassMutual"), a
company with which she has been associated since 1982.
WALTER T. MCCORMICK, age 53, Vice President, is an Executive Vice
President and Director of the Manager. Prior to joining the Manager in June
1998, Mr. McCormick managed equity portfolios for Keystone Investments, Inc.
JOHN E. DEITELBAUM, age 31, Clerk, is Counsel of the Manager and [
] of MassMutual (since 2000). Previously Mr. Deitelbaum was Vice
President and General Counsel of the Manager (1998-1999), Counsel of MassMutual
(1996-1998) and an associate at the law firm of Day Berry & Howard (1993-1996).
The mailing address of each of the officers and Trustees is c/o David
L. Babson & Co. Inc., One Memorial Drive, Cambridge, Massachusetts 02142.
Except as stated above, the principal occupations of the officers and
Trustees for the last five years have been with the employers as shown above,
although in some cases they may have held different positions with such
employers.
9
<PAGE>
TRUSTEE COMPENSATION
- --------------------
The Trust pays each Trustee who is not an "interested person" of the
Trust a fee for his services. The Trustees periodically review their fees to
assure that such fees continue to be appropriate in light of their
responsibilities as well as in relation to fees paid to Trustees of other mutual
fund complexes. The fees paid to each Trustee by the Trust for the fiscal year
ended October 31, 1999, are shown below:
Total Compensation from
Aggregate Compensation Registrant and Fund
Name Of Trustee from Registrant* Complex Paid to Trustees
- --------------- ----------- -------------------------
Charles E. Hugel $ - $ -
Richard A. Nenneman $ - $ -
Richard J. Phelps $ - $ -
James W. MacAllen** $0 $0
- -----------------------
* Includes an annual retainer and an attendance fee for each meeting attended.
** Resigned from service as a Trustee effective October 7, 1999.
10
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
MANAGEMENT CONTRACTS
- --------------------
The Manager, David L. Babson & Co. Inc., One Memorial Drive, Cambridge,
Massachusetts 02142, is a wholly owned subsidiary of DLB Acquisition Corp., a
holding company that is a majority-owned subsidiary of MassMutual Holding Trust
I, which in turn is a holding company and wholly owned subsidiary of MassMutual
Holding Company, a holding company and a wholly owned subsidiary of MassMutual,
a mutual life insurance company. MassMutual also currently owns more than 25% of
the outstanding shares of each of the Funds (other than the International Fund)
and therefore is deemed to "control" each such Fund within the meaning of the
1940 Act.
Under separate Management Contracts (each a "Management Contract")
between the Trust and the Manager, and subject to such policies as the Trustees
of the Trust may determine, the Manager will furnish continuously an investment
program for each Fund and will make investment decisions on behalf of the Fund
and place all orders for the purchase and sale of portfolio securities. The
Manager has entered into separate Subadvisory Agreements with Babson-Stewart
Ivory International ("BSII") with respect to the management of the international
component of the Global Small Cap Fund's portfolio and the investment portfolios
of the International Fund and the Emerging Markets Fund. (BSII is referred to
herein as the "Subadvisor.") The Manager pays the Subadvisor a monthly fee at
the annual rate of (a) .50% of the Global Small Cap Fund's average daily net
assets, (b) .375% of the International Fund's average daily net assets, and (c)
.875% of the Emerging Markets Fund's average daily net assets. These payments
will not affect the amounts payable by the Global Small Cap Fund, the
International Fund or the Emerging Markets Fund to the Manager or such Fund's
expense ratio. Subject to the control of the Trustees, the Manager also manages,
supervises and conducts the other affairs and business of the Trust, furnishes
office space and equipment, provides bookkeeping and certain clerical services
and pays all salaries, fees and expenses of officers and Trustees of the Trust
who are affiliated with the Manager. As indicated under "Portfolio
Transactions," the Trust's portfolio transactions may be placed with
broker-dealers which furnish the Manager, at no cost to the Manager, certain
research, statistical and quotation services of value to the Manager in advising
the Trust or its other clients.
11
<PAGE>
As disclosed in the Prospectus, each of the Funds pays the Manager a
monthly fee at the annual rate of the relevant Fund's average daily net assets
set forth therein. In addition, the Manager has agreed to bear certain expenses
through the fiscal year ending October 31, 2000 to the extent each of the Fund's
annual expenses (including the management fee, but excluding brokerage
commissions, hedging transaction fees and other investment related costs,
extraordinary, non-recurring and certain other unusual expenses, such as
litigation expenses and other extraordinary legal expenses, securities lending
fees and expenses, and transfer taxes) would exceed the percentage of the Fund's
average daily net assets set forth in the Prospectus. The chart set forth below
shows for each Fund (other than the International Fund, the Emerging Markets
Fund and the High Yield Fund, which are newly organized): (1) the total
management fees earned by the Manager, (2) the total management fees actually
paid by the Funds to the Manager and (3) the management fees and other expenses
waived by the Manager during the periods indicated:
<TABLE>
<CAPTION>
MANAGEMENT FEE OTHER TOTAL
FISCAL -------------- EXPENSES EXPENSES
YEAR TOTAL PAID WAIVED WAIVED WAIVED
---- ----- ---- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
1. FIXED INCOME FUND
1997 86,512 43,160 43,352 67,825 111,177
1998 131,644 80,513 51,131 32,137 83,268
1999+
2. VALUE FUND
1997 207,027 131,383 75,644 2,994 78,638
1998 367,883 264,569 103,314 72 103,386
1999+
3. GROWTH FUND*
1998 156,119 106,038 50,081 202 50,283
1999+
4. DISCIPLINED GROWTH
FUND** 1997 151,521 110,944 40,577 91,787 132,364
1998 223,157 177,404 45,753 26,270 72,023
1999+
5. ENTERPRISE III FUND
1997 109,834 54,798 55,036 23,164 78,200
1998 173,748 105,283 68,465 7,012 75,477
1999+
6. MICRO CAP FUND***
1998 151,640 73,575 78,065 30,905 108,970
1999+
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
7. GLOBAL SMALL CAP
FUND**** 1997 131,927 105,509 26,418 58,251 84,669
1998 143,177 120,477 22,700 49,551 72,251
1999+
- -------------------
</TABLE>
*The Growth Fund commenced operations on January 20, 1998.
**The Disciplined Growth Fund commenced operations on August 26, 1996.
***The Micro Cap Fund commenced operations on July 20, 1998.
****Under the Subadvisory Agreement for the Global Small Cap Fund, for the
fiscal years 1997, 1998 and 1999, (1) the Manager paid BSII subadvisory fees of
$52,754, $60,238 and $________ , respectively, and (2) BSII waived a portion of
its fees in an amount equal to $13,209, $11,350 and $________ , respectively.
+The DLB Fund Group changed its fiscal year end in 1999 from December 31 to
October 31. Accordingly, figures shown for 1999 are for a ten (10) month period
only.
Each Management Contract provides that the Manager shall not be subject
to any liability in connection with the performance of its services thereunder
in the absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations and duties. Each Management Contract also provides
that in the event the Manager ceases to be the manager of any Fund, the right of
the Fund or the Trust to use the identifying name "DLB" may be withdrawn. Each
Management Contract for the International Fund and the Emerging Markets Fund
also provides that in the event the Subadvisor ceases to be the subadvisor of
the Fund, the right of the Fund or the Trust to use the identifying name
"Stewart Ivory" may be withdrawn.
Each Management Contract has an initial two-year term and will continue
in effect thereafter indefinitely so long as its continuance is approved at
least annually by (i) vote, cast in person at a meeting called for that purpose,
of a majority (or one, if there is only one) of those Trustees who are not
"interested persons" of the Manager or the Trust, and by (ii) the majority vote
of either the full Board of Trustees or the vote of a majority of the
outstanding shares of the relevant Fund. Each Management Contract automatically
terminates on assignment and is terminable on not more than 60 days' notice by
the Trust to the Manager. In addition, each Management Contract may be
terminated on not more than 60 days' written notice by the Manager to the Trust.
The Subadvisory Agreements contain provisions similar to those
contained in the Management Contracts.
13
<PAGE>
CUSTODIAL ARRANGEMENTS
- ----------------------
Investors Bank & Trust Company ("IBT") serves as the Trust's custodian
on behalf of the Funds. As such, IBT holds in safekeeping certificated
securities and cash belonging to a Fund and, in such capacity, is the registered
owner of securities in book-entry form belonging to a Fund. Upon instruction,
IBT receives and delivers cash and securities of a Fund in connection with Fund
transactions and collects all dividends and other distributions made with
respect to Fund portfolio securities. IBT also maintains certain accounts and
records of the Trust and calculates the total net asset value, total net income
and net asset value per share of each Fund on a daily basis.
TRANSFER AGENT/ADMINISTRATOR
- ----------------------------
In addition to serving as the Trust's custodian, IBT serves as the
Trust's transfer agent and dividend disbursing agent on behalf of the Funds.
IBT, under the terms of an administration agreement with the Trust, also
provides certain services to the Trust, including among others, assisting the
Trust in the following respects: (a) monitoring portfolio compliance, (b)
performing quarterly testing to establish each Fund's qualification as a
regulated investment company for tax purposes, and (c) maintaining effective
Blue Sky notification filings for states in which the Trust intends to solicit
sales of Fund shares.
INDEPENDENT PUBLIC ACCOUNTANTS
Deloitte & Touche LLP is the Trust's independent public accountant,
providing audit services and assistance and consultation in connection with tax
returns and the reviewing of various filings with the Securities and Exchange
Commission (the "SEC").
ADDITIONAL INVESTMENT PRACTICES OF THE FUNDS
As noted in the Prospectus, each Fund may, in pursuing its investment
objective, engage in investment techniques and practices in addition to the
Fund's principal investment strategies. The following discussion provides more
detailed information about certain of these additional, non-principal investment
techniques and practices.
MONEY MARKET INSTRUMENTS. The following is a brief description of the
types of money market securities the Funds may invest in. Money market
securities are high-quality, short-term debt instruments that may be issued by
the U.S. Government, corporations, banks or other entities. They may have fixed,
variable or floating interest rates.
U.S. GOVERNMENT SECURITIES. Each Fund may invest in U.S.
Government Securities. These include obligations issued or
guaranteed by the U.S.
14
<PAGE>
Government or any of its agencies or instrumentalities.
Payment of principal and interest on U.S. Government
obligations (i) may be backed by the full faith and credit of
the United States (as with U.S. Treasury obligations and GNMA
certificates) or (ii) may be backed solely by the issuing or
guaranteeing agency or instrumentality itself (as with FNMA
notes). In the latter case, the investor must look principally
to the agency or instrumentality issuing or guaranteeing the
obligation for ultimate repayment, which agency or
instrumentality may be privately owned. There can be no
assurance that the U.S. Government would provide financial
support to its agencies or instrumentalities where it is not
obligated to do so. As a general matter, the value of debt
instruments, including U.S. Government obligations, declines
when market interest rates increase and rises when market
interest rates decrease. Certain types of U.S. Government
obligations are subject to fluctuations in yield or value due
to their structure or contract terms.
BANK OBLIGATIONS. Each Fund may invest in bank obligations.
These include certificates of deposit, time deposits and
bankers' acceptances. Time deposits, other than overnight
deposits, may be subject to withdrawal penalties and if so
they are deemed "illiquid" investments. Certificates of
deposit are negotiable certificates evidencing the obligation
of a bank to repay funds deposited with it for a specified
period of time. Time deposits are non-negotiable deposits
maintained in a banking institution for a specified period of
time at a stated interest rate. Time deposits that may be held
by a Fund will not benefit from insurance from the Bank
Insurance Fund or the Savings Association Insurance Fund
administered by the Federal Deposit Insurance Corporation.
Bankers' acceptances are credit instruments evidencing the
obligation of a bank to pay a draft drawn on it by a customer.
These instruments reflect the obligation both of the bank and
of the drawer to pay the face amount of the instrument upon
maturity.
COMMERCIAL PAPER. Each Fund may invest in commercial paper, which
consists of short-term, unsecured promissory notes issued by corporations to
finance short-term credit needs. Commercial paper is usually sold on a discount
basis and has a maturity at the time of issuance not exceeding nine months. Each
Fund also may invest in non-convertible corporate debt securities (e.g., bonds
and debentures) with not more than one year remaining to maturity at the date of
settlement.
PREFERRED STOCKS. Each Fund may buy preferred stock. Preferred stock,
unlike common stock, has a stated dividend rate payable from the corporation's
earnings. Preferred stock dividends may be cumulative or non-cumulative,
participating, or auction rate. "Cumulative" dividend provisions require all or
a portion of prior unpaid dividends to be paid. If interest rates rise, the
fixed dividend on preferred stocks may be less
15
<PAGE>
attractive, causing the price of preferred stocks to decline. Preferred stock
may have mandatory sinking fund provisions, as well as call/redemption
provisions prior to maturity, which can be a negative feature when interest
rates decline. Preferred stock also generally has a preference over common stock
on the distribution of a corporation's assets in the event of liquidation of the
corporation. Preferred stock may be "participating" stock, which means that it
may be entitled to a dividend exceeding the stated dividend in certain cases.
The rights of preferred stock on distribution of a corporation's assets in the
event of liquidation are generally subordinate to the rights associated with a
corporation's debt securities.
CONVERTIBLE SECURITIES. Each Fund may purchase fixed-income convertible
securities, such as bonds or preferred stock, which may be converted at a stated
price within a specified period of time into a specified number of shares of
common stock of the same or a different issuer. Convertible securities are
senior to common stock in a corporation's capital structure, but usually are
subordinated to non-convertible debt securities. While providing a fixed-income
stream (generally higher in yield than the income from a common stock but lower
than that afforded by a non-convertible debt security), a convertible security
also affords an investor the opportunity, through its conversion feature, to
participate in the capital appreciation of the common stock into which it is
convertible. In general, the market value of a convertible security is the
higher of its "investment value" (i.e., its value as a fixed-income security) or
its "conversion value" (i.e., the value of the underlying shares of common stock
if the security is converted). As a fixed-income security, the market value of a
convertible security generally increases when interest rates decline and
generally decreases when interest rates rise. However, the price of a
convertible security also is influenced by the market value of the security's
underlying common stock. Thus, the price of a convertible security generally
increases as the market value of the underlying stock increases, and generally
decreases as the market value of the underlying stock declines. Investments in
convertible securities generally entail less risk than investments in the common
stock of the same issuer. While convertible securities are a form of debt
security in many cases, their conversion feature (allowing conversion into
equity securities) causes them to be regarded more as "equity equivalents."
WHEN-ISSUED SECURITIES. Each Fund may purchase or sell securities on a
"when-issued," delayed delivery or on a forward commitment basis ("forward
contracts"). When such transactions are negotiated, the price is fixed at the
time of commitment, but delivery and payment for the securities can take place a
month or more after the commitment date. The securities so purchased or sold are
subject to market fluctuations, and no interest accrues to the purchaser during
this period. At the time of delivery, the securities may be worth more or less
than the purchase or sale price. A Fund may use forward contracts to manage
interest rate exposure, as a temporary substitute for purchasing or selling
particular debt securities, or to take delivery of the underlying security
rather than closing out the forward contract.
16
<PAGE>
RESTRICTED/ILLIQUID SECURITIES. Each Fund may hold up to, but not more
than, 15% of its net assets in "illiquid securities," which are securities that
are not readily marketable, including securities whose disposition is restricted
by contract or under federal securities laws; provided, that in circumstances
where fluctuations in value result in the Fund's investment in illiquid
securities constituting more than 15% of the current value of its net assets,
the Fund will take reasonable steps to reduce its investments in illiquid
securities until such investments constitute no more than 15% of the Fund's net
assets. A Fund may not be able to dispose of such securities in a timely fashion
and for a fair price, which could result in losses to the Fund. In addition,
illiquid securities are generally more difficult to value.
PORTFOLIO TURNOVER. Although portfolio turnover is not a limiting
factor with respect to investment decisions for the Funds, the Funds expect to
experience relatively modest portfolio turnover rates. It is anticipated that
under normal circumstances the annual portfolio turnover rate of any Fund will
not exceed 100%. However, in any particular year, market conditions may result
in greater turnover rates than the Manager currently anticipates. Portfolio
turnover may involve brokerage commissions and other transaction costs, which
the relevant Fund will bear directly, and could involve realization of capital
gains that would be taxable when distributed to shareholders. To the extent that
portfolio turnover results in realization of net short-term capital gains, such
gains ordinarily are taxed to shareholders at ordinary income tax rates.
Portfolio turnover rates for each Fund are shown in the "Financial Highlights"
section of the Prospectus. See the "Taxes" section of the Prospectus and
"Portfolio Transactions" in this Statement of Additional Information for
additional information.
REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements.
Under repurchase agreements, a Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed-upon price and date. The resale price exceeds the acquisition price and
reflects an agreed-upon market rate unrelated to the coupon rate on the
purchased security. Repurchase transactions afford an opportunity for a Fund to
earn a return on temporarily available cash at no market risk, although there is
a risk that the seller may default on its obligation to pay the agreed-upon sum
on the redelivery date. Default may subject a Fund to expenses, delays and risks
of loss. Repurchase agreements entered into with foreign brokers, dealers and
banks involve additional risks similar to those of investing in foreign
securities. For a discussion of these risks, see the discussions of foreign
issuer risk and foreign currency risk in the "Descriptions of Principal
Investment Risks" section of the Prospectus.
LENDING OF PORTFOLIO SECURITIES. Each Fund may make secured loans of
portfolio securities on up to 33% of the Fund's total assets. The risks in
lending portfolio securities, as with other extensions of credit, consist of
possible delay in recovery of the
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securities or possible loss of rights in the collateral should the borrower fail
financially. However, a Fund may make loans of portfolio securities only to
parties that the Manager or Subadvisor believes have relatively high credit
standing. Securities loans are made pursuant to agreements requiring that loans
be continuously secured by collateral in cash or U.S. Government securities at
least equal at all times to the market value of the securities lent. The
borrower pays to the lending Fund an amount equal to any dividends or interest
received on the securities lent. The Fund may invest the cash collateral
received or may receive a fee from the borrower. All investments of cash
collateral by a Fund are for the account and risk of the Fund. Although voting
rights or rights to consent with respect to the loaned securities pass to the
borrower, the Fund retains the right to call the loans at any time on reasonable
notice. The Fund may also call such loans in order to sell the securities
involved. The Fund pays various fees in connection with such loans, including
shipping fees and reasonable custodian and placement fees.
DERIVATIVES. Certain of the instruments in which the Funds may invest,
such as mortgage-backed securities and indexed securities, are considered to be
"derivatives." Derivatives are financial instruments whose value depends upon,
or is derived from, the value of an underlying asset, such as a security or
currency. The use of such instruments may result in a higher amount of
short-term capital gains (taxed at ordinary income tax rates) than would result
if the Funds did not use such instruments.
WARRANTS AND RIGHTS. A warrant typically gives the holder the right to
purchase underlying stock at a specified price for a designated period of time.
Warrants may be a relatively volatile investment. The holder of a warrant takes
the risk that the market price of the underlying stock may never equal or exceed
the exercise price of the warrant. A warrant will expire without value if it is
not exercised or sold during its exercise period. Rights are similar to
warrants, but normally have a short duration and are distributed directly by the
issuer to its shareholders. Warrants and rights have no voting rights, receive
no dividends, and have no rights to the assets of the issuer.
Each Fund may invest in warrants or rights. However, each Fund (other
than the Growth Fund, the Micro Cap Fund, the International Fund, the Emerging
Markets Fund and the High Yield Fund) must limit its investment in warrants or
rights (excluding warrants or rights acquired by the Fund as a part of a unit or
attached to securities at the time of purchase) so that the aggregate value
thereof (taken at the lower of cost or market) does not exceed 5% of the value
of the Fund's total assets and so that no more than 2% of its total assets are
invested in warrants that are not listed on the New York Stock Exchange or the
American Stock Exchange.
REAL ESTATE INVESTMENT TRUSTS. Real estate investment trusts ("REITs")
that may be purchased by a Fund include equity REITs, which own real estate
directly, mortgage REITs, which make construction, development or long-term
mortgage loans, and hybrid REITs, which share characteristics of equity REITs
and mortgage REITs.
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Equity REITs will be affected by, among other things, changes in the value of
the underlying property owned by the REITs, while mortgage REITs will be
affected by, among other things, the value of the properties to which they have
extended credit.
Factors affecting the performance of real estate may include excess
supply of real property in certain markets, changes in zoning laws, completion
of construction, changes in real estate value and property taxes, sufficient
level of occupancy, adequate rent to cover operating expenses, and local and
regional markets for competing assets. The performance of real estate may also
be affected by changes in interest rates, prudent management of insurance risks
and social and economic trends. In addition, REITs are dependent upon the skill
of each REIT's management.
A Fund could, under certain circumstances, own real estate directly as
a result of a default on debt securities it owns or from an in-kind distribution
of real estate from a REIT. Risks associated with such ownership could include
potential liabilities under environmental laws and the costs of other regulatory
compliance. If the Fund has rental income or income from the direct disposition
of real property, the receipt of such income may adversely affect its ability to
retain its tax status as a regulated investment company and thus its ability to
avoid taxation on its income and gains distributed to its shareholders. REITs
are also subject to substantial cash flow dependency, defaults by borrowers,
self-liquidation and the risk of failing to qualify for tax-free pass-through of
income under the Code and/or to maintain exempt status under the 1940 Act. If a
Fund invests in REITs, investors would bear not only a proportionate share of
the expenses of the Fund, but also, indirectly, expenses of the REITs.
FOREIGN SECURITIES. The Global Small Cap Fund, the International Fund, the
Emerging Markets Fund, and, to a lesser extent, each of the other Funds are
permitted to invest in foreign securities. If a Fund's securities are held
abroad, the countries in which such securities may be held and the sub-custodian
holding them must be approved by the Board of Trustees or its delegate under
applicable rules adopted by the SEC.
Foreign securities include debt, equity and hybrid instruments,
obligations and securities of foreign issuers, including governments of
countries other than the United States and companies organized under the laws of
countries other than the United States, companies that have their primary
business carried on outside the United States and companies that have their
principal securities trading market outside the United States. Foreign
securities also include securities of foreign issuers (i) represented by
American Depositary Receipts ("ADRs") or (ii) sponsored or unsponsored Global
Depositary Receipts ("GDRs") and European Depositary Receipts ("EDRs") to the
extent they come available.
ADRs are receipts typically issued by a United States bank or trust
company that evidence ownership of underlying securities issued by a foreign
corporation. Generally,
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ADRs in registered form are designed for use in the United States securities
markets. Each Fund may invest in ADRs through "sponsored" or "unsponsored"
facilities. A sponsored facility is established jointly by the issuer of the
underlying security and a depositary, whereas a depositary may establish an
unsponsored facility without participation by the issuer of the deposited
security. Holders of unsponsored depositary receipts generally bear all the
costs of such facilities and the depositary of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited security or to pass through voting
rights to the holders of such receipts in respect of the deposited securities.
ADRs may not necessarily be denominated in the same currency as the securities
into which they may be converted. The Funds will treat the underlying securities
of an ADR as the investment for purposes of its investment policies and
restrictions.
GDRs and EDRs are typically issued by foreign depositaries and evidence
ownership interests in a security or pool of securities issued by either a
foreign or a U.S. corporation. Holders of unsponsored GDRs and EDRs generally
bear all the costs associated with establishing them. The depositary of an
unsponsored GDR or EDR is under no obligation to distribute shareholder
communications received from the underlying issuer or to pass through to the GDR
or EDR holders any voting rights with respect to the securities or pools of
securities represented by the GDR or EDR. GDRs and EDRs also may be denominated
in a currency different from the currency in which the underlying securities are
denominated. Registered GDRs and EDRs are generally designed for use in U.S.
securities markets, while bearer form GDRs and EDRs are generally designed for
non-U.S. securities markets. The Funds will treat the underlying securities of a
GDR or EDR as the investment for purposes of its investment policies and
restrictions.
Investments in foreign securities involve special risks and
considerations. As foreign companies are not generally subject to uniform
accounting, auditing and financial reporting standards, practices and
requirements comparable to those applicable to domestic companies, there may be
less publicly available information about a foreign company than about a
domestic company. For example, foreign markets have different clearance and
settlement procedures. Delays in settlement could result in temporary periods
when assets of a Fund are uninvested. The inability of a Fund to make intended
security purchases due to settlement problems could cause it to miss certain
investment opportunities. They may also entail certain other risks, such as the
possibility of one or more of the following: imposition of dividend or interest
withholding or confiscatory taxes, higher brokerage costs, thinner trading
markets, currency blockages or transfer restrictions, expropriation,
nationalization, military coups or other adverse political or economic
developments; less government supervision and regulation of securities
exchanges, brokers and listed companies; and the difficulty of enforcing
obligations in other countries. Purchases of foreign securities are usually made
in foreign currencies and, as a result, a Fund may incur currency conversion
costs and may be affected
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favorably or unfavorably by changes in the value of foreign currencies against
the U.S. dollar. Further, it may be more difficult for a Fund's agents to keep
currently informed about corporate actions that may affect the prices of
portfolio securities. Communications between the United States and foreign
countries may be less reliable than within the United States; thus increasing
the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. Certain markets may require payment for
securities before delivery. A Fund's ability and decisions to purchase and sell
portfolio securities may be affected by laws or regulations relating to the
convertibility of currencies and repatriation of assets.
A number of current significant political, demographic and economic
developments may affect investments in foreign securities and in securities of
companies with operations overseas. Such developments include dramatic political
changes in government and economic policies in several Eastern European
countries and the republics composing the former Soviet Union, as well as the
unification of the European Economic Community. The course of any one or more of
these events and the effect on trade barriers, competition and markets for
consumer goods and services are uncertain. Similar considerations are of concern
with respect to developing countries. For example, the possibility of revolution
and the dependence on foreign economic assistance may be greater in these
countries than in developed countries. Management seeks to mitigate the risks
associated with these considerations through active professional management.
In addition to the general risks of investing in foreign securities,
investments in emerging markets involve special risks. Securities of many
issuers in emerging markets may be less liquid and more volatile than securities
of comparable domestic issuers. Emerging markets may have different clearance
and settlement procedures, and in certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when a portion of the assets of a
Fund is uninvested and no return is earned thereon. The inability of a Fund to
make intended security purchases due to settlement problems could cause a Fund
to miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result in losses to a Fund due to
subsequent declines in values of the portfolio securities, decrease in the level
of liquidity in a Fund's portfolio, or, if a Fund has entered into a contract to
sell the security, possible liability to the purchaser. Certain markets may
require payment for securities before delivery, and in such markets a Fund bears
the risk that the securities will not be delivered and that the Fund's payments
will not be returned. Securities prices in emerging markets can be significantly
more volatile than in the more developed nations of the world, reflecting the
greater uncertainties of investing in less established markets and economies. In
particular, countries with emerging markets may have relatively unstable
governments, present the risk of nationalization of businesses, restrictions on
foreign ownership, or prohibitions of repatriation of assets, and may have less
protection of property rights than more
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developed countries. The economies of countries with emerging markets may be
predominantly based on only a few industries, may be highly vulnerable to
changes in local or global trade conditions, and may suffer from extreme and
volatile debt burdens or inflation rates. Local securities markets may trade a
small number of securities and may be unable to respond effectively to increases
in trading volume, potentially making prompt liquidation of substantial holdings
difficult or impossible at times. Securities of issuers located in countries
with emerging markets may have limited marketability and may be subject to more
abrupt or erratic price movements.
Certain emerging markets may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if deterioration occurs in an
emerging market's balance of payments or for other reasons, a country could
impose temporary restrictions on foreign capital remittances. A Fund could be
adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation of capital, as well as by the application
to that Fund of any restrictions on investments.
Investment in certain foreign emerging market debt obligations may be
restricted or controlled to varying degrees. These restrictions or controls may
at times preclude investment in certain foreign emerging market debt obligations
and increase the expenses of a Fund.
ADDITIONAL INVESTMENT PRACTICES OF
THE FIXED INCOME FUND AND THE HIGH YIELD FUND
In addition to the investment practices described in the Prospectus,
the Fixed Income Fund and the High Yield Fund may also engage in the following
investment practices.
ADJUSTABLE RATE SECURITIES. The Funds may invest in adjustable rate
securities, which are securities that have interest rates that are reset at
periodic intervals, usually by reference to some interest rate index or market
interest rate. They may be U.S. Government securities or securities of other
issuers. Some adjustable rate securities are backed by pools of mortgage loans.
Although the rate adjustment feature may act as a buffer to reduce sharp changes
in the value of adjustable rate securities, these securities are still subject
to changes in value based on changes in market interest rates or changes in the
issuer's creditworthiness. Because the interest rate is reset only periodically,
changes in the interest rates on adjustable rate securities may lag changes in
prevailing market interest rates. Also, some adjustable rate securities (or the
underlying mortgages) are subject to caps or floors that limit the maximum
change in interest rates during a specified period or over the life of the
security. Because of the resetting of interest rates,
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adjustable rate securities are less likely than non-adjustable rate securities
of comparable quality and maturity to increase significantly in value when
market interest rates fall.
INTEREST RATE SWAPS AND RELATED INSTRUMENTS. An interest rate swap
agreement involves the exchange by a Fund with another party of their respective
commitments to pay or receive interest, such as an exchange of floating rate
payments for fixed rate payments with respect to a notional amount of principal.
Interest rate and yield curve swaps may be used by the Fund as a hedging
technique to preserve a return or spread on a particular investment or portion
of its portfolio or to protect against any increase in the price of securities
the Fund anticipates purchasing in the future. The Funds intend to use these
transactions as hedges and not as speculative investments. The Funds usually
will enter into such agreements on a net basis whereby the two payments of
interest are netted with only one party paying the net amount, if any, to the
other.
MUNICIPAL BONDS. The Fixed Income Fund may invest in debt securities
issued by or on behalf of states, territories and possessions of the United
States and the District of Columbia and their political subdivisions, agencies
or instrumentalities, the interest on which is exempt from federal income tax
("municipal bonds"). Municipal bonds are issued to raise money for a variety of
public or private purposes, including financing state or local governments,
specific projects or public facilities.
The Fund can invest in municipal securities that are "general
obligations," secured by the issuer's pledge of its full faith, credit and
taxing power for the payment of principal and interest. The basic security
behind general obligation bonds is the issuer's pledge of its full faith and
credit and taxing power, if any, for the repayment of principal and the payment
of interest. Issuers of general obligation bonds include states, counties,
cities, towns, and regional districts. The proceeds of these obligations are
used to fund a wide range of public projects, including construction or
improvement of schools, highways and roads, and water and sewer systems. The
rate of taxes that can be levied for the payment of debt service on these bonds
may be limited or unlimited. Additionally, there may be limits as to the rate or
amount of special assessments that can be levied to meet these obligations.
The Fund can also buy municipal bonds that are "revenue obligations,"
whose interest is payable only from the revenues derived from a particular
facility or class of facilities, or a specific excise tax or other revenue
source. The principal security for a revenue bond is generally the net revenues
derived from a particular facility, group of facilities, or, in some cases, the
proceeds of a special excise tax or other specific revenue source. Revenue bonds
are issued to finance a wide variety of capital projects. Examples include
electric, gas, water and sewer systems; highways, bridges, and tunnels; port and
airport facilities; colleges and universities; and hospitals. Although the
principal security for these types of bonds may vary from bond to bond, many
provide additional security in the form of a debt service reserve fund that may
be used to make principal and interest
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payments on the issuer's obligations. Housing finance authorities have a wide
range of security, including partially or fully insured mortgages,
rent-subsidized and/or collateralized mortgages, and/or the net revenues from
housing or other public projects. Some authorities provide further security in
the form of a state's ability (without obligation) to make up deficiencies in
the debt service reserve fund.
The Fund may also buy industrial development bonds, which are
considered municipal bonds if the interest paid is exempt from federal income
tax. They are issued by or on behalf of public authorities to raise money to
finance various privately operated facilities for business and manufacturing,
housing, sports, and pollution control. These bonds may also be used to finance
public facilities such as airports, mass transit systems, ports, and parking.
The payment of the principal and interest on such bonds is dependent solely on
the ability of the facility's user to meet its financial obligations and the
pledge, if any, of real and personal property financed by the bond as security
for those payments.
The municipal bonds that may be purchased by the Fund may have fixed,
variable or floating rates of interest. In addition, some bonds may be
"callable," allowing the issuer to redeem them before their maturity date. When
interest rates decline, it is more likely that the issuer may call the bond. If
that occurs, the Fund might have to reinvest the proceeds of the called bond in
fixed income securities that pay a lower rate of return.
LOWER RATED FIXED INCOME SECURITIES. Under normal market conditions,
the High Yield Fund invests primarily in lower rated fixed income securities
(commonly known as "junk bonds"). The lower ratings of certain securities held
by the Fund reflect a greater possibility that adverse changes in the financial
condition of the issuer or in general economic conditions, or both, or an
unanticipated rise in interest rates, may impair the ability of the issuer to
make payments of interest and principal. The inability (or perceived inability)
of issuers to make timely payments of interest and principal would likely make
the values of securities held by the Fund more volatile and could limit the
Fund's ability to sell its securities at prices approximating the values the
Fund had placed on such securities. In the absence of a liquid trading market
for securities held by the Fund, the Fund at times may be unable to establish
the fair value of such securities. Furthermore, since the Fund typically invests
primarily in lower rated fixed income securities, the Fund's achievement of its
investment objective may be more dependent upon the Manager's investment
analysis than if the Fund invested primarily in higher rated securities.
Securities ratings are based largely on the issuer's historical
financial condition and the rating agencies' analysis at the time of rating.
Consequently, the rating assigned to any particular security is not necessarily
a reflection of the issuer's current financial condition, which may be better or
worse than the rating would indicate. In addition, the rating assigned to a
security by Moody's Investors Service, Inc. or Standard & Poor's (or by any
other nationally recognized securities rating agency) does not reflect an
assessment of the volatility of the security's market value or the liquidity of
an investment in the security. A description of the securities ratings assigned
by Moody's Investors Service, Inc. and Standard & Poor's is included in Appendix
B to the Fund's prospectus.
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Like those of other fixed income securities, the values of lower rated
securities fluctuate in response to changes in interest rates. A decrease in
interest rates will generally result in an increase in the value of the Fund's
assets. Conversely, during periods of rising interest rates, the value of the
Fund's assets will generally decline. The values of lower rated securities may
often be affected to a greater extent by changes in general economic conditions
and business conditions affecting the issuers of such securities and their
industries. Negative publicity or investor perceptions may also adversely affect
the values of lower rated securities. Changes by securities rating agencies in
their ratings of a fixed income security and changes in the ability of an issuer
to make payments of interest and principal may also affect the values of these
investments. Changes in the values of portfolio securities generally will not
affect income derived from these securities but will affect the Fund's net asset
value. The Fund will not necessarily sell a security when its rating falls below
its rating at the time of purchase. The Manager will monitor the investment,
however, to determine whether its retention will assist in meeting the Fund's
investment objective.
Issuers of lower rated securities are often highly leveraged, so that
their ability to service their debt obligations during an economic downturn or
during sustained periods of rising interest rates may be impaired. Such issuers
may not have more traditional methods of financing available to them and may be
unable to repay outstanding obligations at maturity by refinancing. The risk of
loss due to default in payment of interest or repayment of principal by such
issuers is significantly greater because such securities frequently are
unsecured and subordinated to the prior payment of senior indebtedness.
At times, a substantial portion of the Fund's assets may be invested in
securities of which the Fund, by itself or together with other funds and
accounts managed by the Manager, holds all or a major portion. Although the
Manager generally considers such securities to be liquid because of the
availability of an institutional market for such securities, it is possible
that, under adverse market or economic conditions or in the event of adverse
changes in the financial condition of the issuer, the Fund could find it
difficult to sell these securities when the Manager believes it advisable to do
so or may be able to sell the securities only at prices lower than if they were
more widely held. Under these circumstances, it may also be difficult to
determine the fair value of such securities for purposes of computing the Fund's
net asset value. In order to enforce its rights in the event of a default by the
issuer of such securities, the Fund may be required to participate in various
legal proceedings or take possession of and manage assets securing the issuer's
obligations on such securities. This could increase the Fund's operating
expenses and adversely affect the Fund's net asset value. In addition, the
Fund's intention to qualify as a "regulated investment company" under the Code
may limit the extent to which the Fund may exercise its rights by taking
possession of such assets.
Certain securities held by the Fund may permit the issuer at its option
to "call," or redeem, its securities. If an issuer were to redeem securities
held by the Fund during a time of declining interest rates, the Fund may not be
able to reinvest the proceeds in securities providing the same investment return
as the securities redeemed.
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The Fund may invest in zero coupon fixed income securities and
payment-in-kind fixed income securities. Zero coupon fixed income securities are
issued at a significant discount from their principal amount in lieu of paying
interest periodically. Payment-in-kind fixed income securities allow the issuer,
at its option, to make current interest payments on the fixed income securities
either in cash or in additional fixed income securities. Because zero coupon and
payment-in-kind fixed income securities do not pay current interest in cash,
their value is subject to greater fluctuation in response to changes in market
interest rates than fixed income securities that pay interest currently. Both
zero coupon and payment-in-kind fixed income securities allow an issuer to avoid
the need to generate cash to meet current interest payments. Accordingly, such
securities may involve greater credit risks than fixed income securities paying
interest currently in cash. The Fund is required to accrue interest income on
such investments and to distribute such amounts at least annually to
shareholders even though such securities do not pay current interest in cash.
Thus, it may be necessary at times for the Fund to liquidate investments in
order to satisfy its dividend requirements.
COMMON STOCKS AND OTHER EQUITY SECURITIES. The High Yield Fund may
invest in common stocks and their equivalents. Common stocks and their
equivalents, together called "equity securities," are generally volatile and
more risky than some other forms of investment. Equity securities of companies
with relatively small market capitalization may be more volatile than the
securities of larger, more established companies and than the broad equity
market indices.
ASSET-BACKED SECURITIES. The Funds may invest in asset-backed
securities. Through the use of trusts and special purpose corporations,
automobile or credit card receivables may be securitized in pass-through
structures similar to mortgage pass-through structures or in a pass-through
structure similar to the CMO structure. Generally, the issuers of asset-backed
bonds, notes or pass-through certificates are special purpose entities and do
not have any significant assets other than the receivables securing such
obligations. In general, the collateral supporting asset-backed securities is of
shorter maturity than mortgage loans. Instruments backed by pools of receivables
are similar to mortgage-backed securities in that they are subject to
unscheduled prepayments of principal prior to maturity. When the obligations are
prepaid, the Fund ordinarily will reinvest the prepaid amounts in securities the
yields of which reflect interest rates prevailing at the time. Therefore, a
Fund's ability to maintain a portfolio that includes high-yielding asset-backed
securities will be adversely affected to the extent that prepayments of
principal must be reinvested in securities that have lower yields than the
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prepaid obligations. Moreover, prepayments of securities purchased at a premium
could result in a realized loss.
OPEN-END INVESTMENT COMPANIES AND CLOSED-END INVESTMENT COMPANIES. The
High Yield Fund may invest in open-end investment companies and in closed-end
investment companies. Investment companies include the category of investments
commonly known as mutual funds. An open-end investment company is a fund that
redeems its shares on a daily basis, while a closed-end investment company is a
fund that does not redeem its shares on a daily basis. An investment in a
closed-end investment company may be less liquid than an investment that can be
sold any time a Fund holding such an investment decides to sell. Since the value
of an investment company is based on the value of the individual securities it
holds, an investment company's value will fall if the value of its underlying
securities declines. As a shareholder of an investment company, a Fund will bear
its ratable share of the investment company's expenses, including management
fees, and will remain subject to the investment company's advisory and
administration fees with respect to the assets so invested.
STRIPS AND RESIDUALS. The Funds may invest in stripped mortgage-backed
securities that are usually structured with two classes that receive different
portions of the interest and principal distributions on a pool of mortgage
loans. The Funds may invest in both the interest-only or "IO" class and the
principal-only or "PO" class. Prepayments could result in losses on such
stripped mortgage-backed securities. The yield to maturity on an IO class of
stripped mortgage-backed securities is extremely sensitive not only to changes
in prevailing interest rates but also to the rate of principal payments
(including prepayments) on the underlying assets. A rapid rate of principal
prepayments may have a measurably adverse effect on a Fund's yield to maturity
to the extent it invests in IOs. If the assets underlying the IO experience
greater than anticipated prepayments of principal, the Fund may fail to fully
recoup its initial investment in these securities. Conversely, POs tend to
increase in value if prepayments are greater than anticipated and decline if
prepayments are slower than anticipated. Stripped mortgage-backed securities may
have limited liquidity. The Funds may also invest in IO or PO strips relating to
other types of fixed income securities, such as asset-backed securities. Such
investments would be subject to risks similar to those described above.
Collateralized mortgage obligations ("CMOs") also include securities
representing the interest in any excess cash flow and/or the value of any
collateral remaining after the issuer has applied cash flow from the underlying
mortgages or mortgage-backed securities to the payment of principal of, and
interest on, all other CMOs and the administrative expenses of the issuer
("Residuals"). Due to uncertainty as to whether any
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excess cash flow or the underlying collateral will be available, there can be no
assurances that Residuals will ultimately have value. Residuals also involve the
additional risk of loss of the entire value of the investment if the underlying
securities are prepaid. In addition, if a CMO bears interest at an adjustable
rate, the cash flows on the related Residual will also be extremely sensitive to
the level of the index upon which the rate adjustments are based.
ZERO COUPON SECURITIES. The Funds may invest in "zero coupon" fixed
income securities. Funds are required to accrue interest income on these
securities at a fixed rate based on the initial purchase price and the length to
maturity, but these securities do not pay interest in cash on a current basis.
Funds are required to distribute the income on these securities to its
shareholders as the income accrues, even though a Fund is not receiving the
income in cash on a current basis. Thus, the Funds may have to sell other
investments to obtain cash to make income distributions. The market value of
zero coupon securities is often more volatile than that of non-zero coupon fixed
income securities of comparable quality and maturity.
INDEXED SECURITIES. The Funds may purchase securities, the redemption
values and/or the coupons of which are indexed to the prices of other
securities, securities indices, precious metals or other commodities, or other
financial indicators. Indexed securities typically, but not always, are debt
securities or deposits whose value at maturity or coupon rate is determined by
reference to a specific instrument or statistic. Gold-indexed securities, for
example, typically provide for a maturity value that depends on the price of
gold, resulting in a security whose price tends to rise and fall together with
gold prices.
The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument to which they are
indexed, and may also be influenced by interest rate changes in the U.S. and
abroad. At the same time, indexed securities are subject to the credit risks
associated with the issuer of the security, and their values may decline
substantially if the issuer's creditworthiness deteriorates. Indexed securities
may be more volatile than the underlying instrument.
Indexed securities in which the Funds may invest include so-called
"inverse floating obligations" or "residual interest bonds" on which the
interest rates typically decline as short-term market interest rates increase
and increase as short-term market rates decline. Such securities have the effect
of providing a degree of investment leverage because they will generally
increase or decrease in value in response to changes in market interest rates at
a rate which is a multiple of the rate at which fixed-rate long-term securities
increase or decrease in response to such changes. As a result, the market values
of such securities will generally be more volatile than the market values of
fixed rate securities.
28
<PAGE>
LOANS AND OTHER DIRECT DEBT INSTRUMENTS. The Funds may invest in direct
debt instruments which are interests in amounts owed by a corporate,
governmental, or other borrower to lenders or lending syndicates (loans and loan
participations), to suppliers of goods or services (trade claims or other
receivables), or to other parties. Direct debt instruments are subject to the
Funds' policies regarding the quality of debt securities.
Purchasers of loans and other forms of direct indebtedness depend
primarily upon the creditworthiness of the borrower for payment of principal and
interest. Direct debt instruments may not be rated by any nationally recognized
rating agency. Loans that are fully secured offer the Funds more protection than
an unsecured loan in the event of non-payment of scheduled interest or
principal. However, there is no assurance that the liquidation of collateral
from a secured loan would satisfy the borrower's obligation, or that the
collateral can be liquidated. Indebtedness of borrowers whose creditworthiness
is poor involves substantially greater risks, and may be highly speculative.
Borrowers that are in bankruptcy or restructuring may never pay off their
indebtedness, or may pay only a small fraction of the amount owed. Direct
indebtedness of emerging countries will also involve a risk that the
governmental entities responsible for the repayment of the debt may be unable,
or unwilling, to pay interest and repay principal when due.
Investments in loans through direct assignment of a financial
institution's interest with respect to a loan may involve additional risks to a
Fund. For example, if a loan is foreclosed, the Fund could become part owner of
any collateral, and would bear the costs and liabilities associated with owning
and disposing of the collateral. In addition, it is conceivable that under
emerging legal theories of lender liability, the Fund could be held liable as a
co-lender. Direct debt instruments may also involve a risk of insolvency of the
lending bank or other intermediary.
A loan is often administered by a bank or other financial institution
that acts as agent for all holders. The agent administers the terms of the loan,
as specified in the loan agreement. A Fund may have to rely on the agent to
collect and pass on to the Fund any payments received from the borrower and to
apply appropriate credit remedies against a borrower. When the Fund is required
to rely upon a financial institution to pass on to the Fund principal and
interest, the Fund will evaluate the creditworthiness of such financial
institution as well as the creditworthiness of the borrower.
Direct indebtedness purchased by a Fund may include letters of credit,
revolving credit facilities, or other standby financing commitments obligating
the Fund to pay additional cash on demand. These commitments may have the effect
of requiring the Fund to increase its investment in a borrower at a time when it
would not otherwise have done so. The Fund will set aside appropriate liquid
assets in a segregated custodial account to cover its potential obligations
under standby financing commitments.
29
<PAGE>
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLL TRANSACTIONS. The Funds
may enter into reverse repurchase agreements and dollar roll agreements with
banks and brokers to enhance return.
Reverse repurchase agreements involve sales by a Fund of portfolio
assets concurrently with an agreement by the Fund to repurchase the same assets
at a later date at a fixed price. During the reverse repurchase agreement
period, the Fund continues to receive principal and interest payments on these
securities and also has the opportunity to earn a return on the collateral
furnished by the counterparties to secure their obligation to redeliver the
securities.
Dollar rolls are transactions in which a Fund sells securities for
delivery in the current month and simultaneously contracts to repurchase
substantially similar (same type and coupon) securities on a specified future
date. During the roll period, the Fund forgoes principal and interest paid on
the securities. The Fund is compensated by the difference between the current
sales price and the forward price for the future purchase (often referred to as
the "drop") as well as by the interest earned on the cash proceeds of the
initial sale.
The Funds will establish segregated accounts with their custodian in
which they will maintain assets equal in value to their obligations in respect
of reverse repurchase agreements and dollar rolls. Reverse repurchase agreements
involve the risk that the market value of the securities retained by a Fund may
decline below the price of the securities the Fund has sold but is obligated to
repurchase under the agreement. In the event the buyer of securities under a
reverse repurchase agreement or dollar roll files for bankruptcy or becomes
insolvent, a Fund's use of the proceeds of the agreement may be restricted
pending a determination by the other party, or its trustee or receiver, whether
to enforce the Fund's obligation to repurchase the securities. Reverse
repurchase agreements and dollar rolls are considered borrowings by a Fund for
purposes of the Fund's fundamental investment restriction with respect to
borrowings.
ADDITIONAL INVESTMENT PRACTICES OF THE
DISCIPLINED GROWTH FUND AND THE HIGH YIELD FUND --
FUTURES AND OPTIONS
In addition to the investment practices described in the Prospectus,
the Disciplined Growth Fund and the High Yield Fund may also engage in
transactions involving futures and options. The following sections provide more
detailed information about these practices.
SUMMARY - FINANCIAL FUTURES AND OPTIONS ON FUTURES. The Funds may buy
and sell financial futures contracts on securities indices and fixed income
securities. A
30
<PAGE>
futures contract is a contract to buy or sell units of a particular securities
index, or a certain amount of a fixed income security, at an agreed price on a
specified future date. Depending on the change in value of the index or security
between the time when a Fund enters into and terminates a futures contract, the
Fund realizes a gain or loss. The Fund may purchase and sell futures contracts
for hedging purposes and to adjust that Fund's exposure to relevant stock or
bond markets. For example, when the Manager wants to increase the Fund's
exposure to equity securities, it may do so by taking long positions in futures
contracts on equity indices such as futures contracts on the Standard & Poor's
500 Composite Stock Price Index ("S&P 500"). Similarly, when the Manager wants
to increase the Fund's exposure to fixed income securities, it may do so by
taking long positions in futures contracts relating to fixed income securities
such as futures contracts on U.S. Treasury bonds or notes. The Fund may buy and
sell call and put options on futures contracts or on stock indices in addition
to or as an alternative to purchasing or selling futures contracts.
The use of futures and options involves certain special risks. Certain
risks arise because of the possibility of imperfect correlations between
movements in the prices of financial futures and options and movements in the
prices of the underlying securities index or securities that are the subject of
the hedge. The successful use of futures and options further depends on the
Manager's ability to forecast market or interest rate movements correctly. Other
risks arise from a Fund's potential inability to close out its futures or
related options positions, and there can be no assurance that a liquid secondary
market will exist for any futures contract or option at a particular time. The
Fund's ability to terminate option positions established in the over-the-counter
market may be more limited than for exchange-traded options and may also involve
the risk that securities dealers participating in such transactions would fail
to meet their obligations to the Fund. The use of futures or options on futures
for purposes other than hedging may be regarded as speculative. Certain
regulatory requirements may also limit the Fund's ability to engage in futures
and options transactions.
SUMMARY - OPTIONS. The Funds may purchase and sell call and put options
on securities it owns or in which it may invest. A Fund receives a premium from
writing a call or put option, which increases the Fund's return if the option
expires unexercised or is closed out at a net profit. When the Fund writes a
call option, it gives up the opportunity to profit from any increase in the
price of a security above the exercise price of the option; when it writes a put
option, the Fund takes the risk that it will be required to purchase a security
from the option holder at a price above the current market price of the
security. The Fund may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction in which it purchases
an option having the same terms as the option written. The Fund may also from
time to time buy and sell combinations of put and call options on the same
underlying security to earn additional income. The aggregate value of the
securities underlying the options written by the Fund
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<PAGE>
may not exceed 25% of the Fund's total assets. The Fund's use of these
strategies may be limited by applicable law.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. The Funds will comply
with guidelines established by the SEC with respect to coverage of options and
futures strategies by mutual funds, and if the guidelines so require will set
aside appropriate liquid assets in a segregated custodial account in the amount
prescribed. Securities held in a segregated account cannot be sold while the
futures or options strategy is outstanding, unless they are replaced with other
suitable assets. As a result, there is a possibility that segregation of a large
percentage of a Fund's assets could impede portfolio management or the Fund's
ability to meet redemption requests or other current obligations.
COMBINED POSITIONS. The Funds may purchase and write options in
combination with each other, or in combination with futures or forward
contracts, to adjust the risk and return characteristics of the overall
position. For example, a Fund may purchase a put option and write a call option
on the same underlying instrument, in order to construct a combined position
whose risk and return characteristics are similar to selling a futures contract.
Another possible combined position would involve writing a call option at one
strike price and buying a call option at a lower price, in order to reduce the
risk of the written call option in the event of a substantial price increase.
Because combined options positions involve multiple trades, they result in
higher transaction costs and may be more difficult to open and close out.
CORRELATION OF PRICE CHANGES. Because there are a limited number of
types of exchange-traded options and futures contracts, it is likely that the
standardized contracts available will not match a Fund's current or anticipated
investments exactly. The Fund may invest in options and futures contracts based
on securities with different issuers, maturities, or other characteristics from
the securities in which it typically invests, which involves a risk that the
options or futures position will not track the performance of the Fund's other
investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match the Fund's
investments well. Options and futures prices are affected by such factors as
current and anticipated short-term interest rates, changes in volatility of the
underlying instruments, and the time remaining until expiration of the contract,
which may not affect security prices the same way. Imperfect correlation may
also result from differing levels of demand in the options and futures markets
and the securities markets, from structural differences in how options and
futures and securities are traded, or from imposition of daily price fluctuation
limits or trading halts. The Fund may purchase or sell options and futures
contracts with a greater or lesser value than the securities it wishes to hedge
or intends to purchase in order to attempt to compensate for differences in
volatility between the contract and the
32
<PAGE>
securities, although this may not be successful in all cases. If price changes
in the Fund's options or futures positions are poorly correlated with its other
investments, the positions may fail to produce anticipated gains or result in
losses that are not offset by gains in other investments.
FUTURES CONTRACTS. When a Fund purchases a futures contract, it agrees
to purchase a specified underlying instrument at a specified future date. When
the Fund sells a futures contract, it agrees to sell the underlying instrument
at a specified future date. The price at which the purchase and sale will take
place is fixed when the Fund enters into the contract. Some currently available
futures contracts are based on specific securities, such as U.S. Treasury bonds
or notes, and some are based on indices of securities prices, such as the S&P
500. Futures can be held until their delivery dates, or can be closed out before
then if a liquid secondary market is available. The value of a futures contract
tends to increase and decrease in tandem with the value of its underlying
instrument. Therefore, purchasing futures contracts will tend to increase the
Fund's exposure to positive and negative price fluctuations in the underlying
instrument, much as if it had purchased the underlying instrument directly. When
the Fund sells a futures contract, by contrast, the value of its futures
position will tend to move in a direction contrary to the market. Selling
futures contracts, therefore, will tend to offset both positive and negative
market price changes, much as if the underlying instrument had been sold.
FUTURES MARGIN PAYMENTS. The purchaser or seller of a futures contract
is not required to deliver or pay for the underlying instrument unless the
contract is held until the delivery date. However, both the purchaser and seller
are required to deposit "initial margin" with a futures broker, known as a
futures commission merchant ("FCM"), when the contract is entered into. Initial
margin deposits are typically equal to a percentage of the contract's value. If
the value of either party's position declines, that party will be required to
make additional "variation margin" payments to settle the change in value on a
daily basis. The party that has a gain may be entitled to receive all or a
portion of this amount. Initial and variation margin payments do not constitute
purchasing securities on margin for purposes of a Fund's investment limitations.
In the event of the bankruptcy of an FCM that holds margin on behalf of the
Fund, the Fund may be entitled to return of margin owed to it only in proportion
to the amount received by the FCM's other customers, potentially resulting in
losses to the Fund.
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. The Funds have filed a
notice of eligibility for exclusion from the definition of the term "commodity
pool operator" with the Commodity Futures Trading Commission ("CFTC") and the
National Futures Association, which regulate trading in the futures markets. The
Funds intend to comply with Rule 4.5 under the Commodity Exchange Act. To the
extent the Funds do not engage in commodity futures or commodity options for
"bona fide" hedging purposes, the Rule requires the Funds to limit the initial
margin and premiums paid to establish such
33
<PAGE>
positions to 5% of net assets. The amount by which a commodity option is "in the
money" is excluded for these purposes.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a
liquid secondary market will exist for any particular options or futures
contract at any particular time. Options may have relatively low trading volume
and liquidity if their strike prices are not close to the underlying
instrument's current price. In addition, exchanges may establish daily price
fluctuation limits for options and futures contracts, and may halt trading if a
contract's price moves upward or downward more than the limit in a given day. On
volatile trading days when the price fluctuation limit is reached or a trading
halt is imposed, it may be impossible for a Fund to enter into new positions or
close out existing positions. If the secondary market for a contract is not
liquid because of price fluctuation limits or otherwise, it could prevent prompt
liquidation of unfavorable positions, and potentially could require the Fund to
continue to hold a position until delivery or expiration regardless of changes
in its value. As a result, the Fund's access to other assets held to cover its
options or futures positions could also be impaired.
OTC OPTIONS. Unlike exchange-traded options, which are standardized
with respect to the underlying instrument, expiration date, contract size, and
strike price, the terms of over-the-counter ("OTC") options (options not traded
on exchanges) generally are established through negotiation with the other party
to the option contract. While this type of arrangement allows a Fund greater
flexibility to tailor an option to its needs, OTC options generally involve
greater credit risk than exchange-traded options, which are guaranteed by the
clearing organization of the exchanges where they are traded.
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, a Fund
obtains the right (but not the obligation) to sell the option's underlying
instrument at a fixed strike price. In return for this right, the Fund pays the
current market price for the option (known as the option premium). Options have
various types of underlying instruments, including specific securities, indices
of securities prices, and futures contracts. The Fund may terminate its position
in a put option it has purchased by allowing it to expire or by exercising the
option. If the option is allowed to expire, the Fund will lose the entire
premium it paid. If the Fund exercises the option, it completes the sale of the
underlying instrument at the strike price. The Fund may also terminate a put
option position by closing it out in the secondary market at its current price,
if a liquid secondary market exists.
The buyer of a typical put option can expect to realize a gain if
security prices fall substantially. However, if the underlying instrument's
price does not fall enough to offset the cost of purchasing the option, a put
buyer can expect to suffer a loss (limited to the amount of the premium paid,
plus related transaction costs).
34
<PAGE>
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's strike
price. A call buyer typically attempts to participate in potential price
increases of the underlying instrument with risk limited to the cost of the
option if security prices fall. At the same time, the buyer can expect to suffer
a loss if security prices do not rise sufficiently to offset the cost of the
option.
WRITING PUT AND CALL OPTIONS. When a Fund writes a put option, it takes
the opposite side of the transaction from the option's purchaser. In return for
receipt of the premium, the Fund assumes the obligation to pay the strike price
for the option's underlying instrument if the other party to the option chooses
to exercise it. When writing an option on a futures contract, the Fund will be
required to make margin payments to an FCM as described above for futures
contracts. The Fund may seek to terminate its position in a put option it writes
before exercise by closing out the option in the secondary market at its current
price. If the secondary market is not liquid for a put option the Fund has
written, however, the Fund must continue to be prepared to pay the strike price
while the option is outstanding, regardless of price changes, and must continue
to set aside assets to cover its position.
If security prices rise, a put writer would generally expect to profit,
although its gain would be limited to the amount of the premium it received. If
security prices remain the same over time, it is likely that the writer will
also profit, because it should be able to close out the option at a lower price.
If security prices fall, the put writer would expect to suffer a loss. This loss
should be less than the loss from purchasing the underlying instrument directly,
however, because the premium received for writing the option should mitigate the
effects of the decline. Writing a call option obligates the Fund to sell or
deliver the option's underlying instrument, in return for the strike price, upon
exercise of the option. The characteristics of writing call options are similar
to those of writing put options, except that writing calls generally is a
profitable strategy if prices remain the same or fall. Through receipt of the
option premium, a call writer mitigates the effects of a price decline. At the
same time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in security price increases.
ADDITIONAL INVESTMENT PRACTICES OF THE
GLOBAL SMALL CAP FUND
The Global Small Cap Fund normally expects to invest approximately 40%
to 60% of its assets outside the United States and the remaining 60% to 40% of
its assets inside the United States. The weighting of the Fund's portfolio
between foreign and domestic investments will depend upon prevailing conditions
in foreign and domestic markets. Under certain market conditions, the Fund may
invest more than 60% of its assets either outside or inside the United States.
In addition, the Fund will always invest
35
<PAGE>
at least 65% of its total assets in at least three different countries, one of
which will be the United States.
The Manager believes that the securities markets of many nations move
relatively independently of one another because business cycles and other
economic or political events that influence one country's securities markets may
have little effect on securities markets in other countries. By investing in a
global portfolio, the Fund attempts to reduce the risks associated with
investing in the economy of only one country. Consistent with the above
policies, the Fund may at times invest more than 25% of its assets in the
securities of issuers located in a single country. At such times, the Fund's
performance will be directly affected by political, economic, market and
exchange rate conditions in such country. When the Fund invests a substantial
portion of its assets in a single country it is subject to greater risk of
adverse changes in any of these factors with respect to such country than a fund
which does not invest as heavily in the country.
In certain foreign countries, particularly newly industrializing
countries, the Fund's market capitalization guideline of $1.5 billion may
include companies which, when viewed on a relative basis, are not considered
"small cap" in the particular country.
ADDITIONAL INVESTMENT PRACTICES OF THE
GLOBAL SMALL CAP FUND, THE INTERNATIONAL FUND
AND THE EMERGING MARKETS FUND
POOLED INVESTMENT VEHICLES. In order to gain exposure to certain
foreign countries that prohibit or impose restrictions on direct investment, the
Global Small Cap Fund, the International Fund and the Emerging Markets Fund may
(subject to any applicable regulatory requirements) invest in foreign and
domestic investment companies and other pooled investment vehicles that invest
primarily or exclusively in such countries. A Fund's investment through such
vehicles will generally involve the payment of indirect expenses (including
advisory fees) which the Fund does not incur when investing directly.
FOREIGN CURRENCY TRANSACTIONS. Since the stocks of foreign companies
are frequently denominated in foreign currencies, and since a Fund may
temporarily hold uninvested reserves in bank deposits in foreign currencies, the
Fund will be affected favorably or unfavorably by changes in currency rates and
in exchange control regulations, and may incur costs in connection with
conversions between various currencies.
Each Fund's general approach is to leave currency exposure unhedged.
The investment policies of each Fund, however, permit the Fund to purchase
foreign securities or enter into forward foreign currency exchange contracts in
order to expedite settlement of portfolio transactions. In exceptional
circumstances, a Fund may use forward foreign
36
<PAGE>
currency exchange contracts or other currency transactions, such as exchange
listed currency futures, exchange listed and OTC options on currencies, and
currency swaps, to protect a position if fundamental technical analysis suggests
that it is necessary.
A Fund will ordinarily conduct its foreign currency exchange
transactions either on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market, or through the use of forward contracts to
purchase or sell foreign currencies. A forward foreign currency exchange
contract will involve an obligation by a Fund to purchase or sell a specific
amount of currency at a future date, which may be any fixed number of days, from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are transferable in the interbank market
conducted directly between currency traders (usually large commercial banks) and
their customers. A forward contract generally has no deposit requirements, and
no commissions are charged at any stage for trades. Neither type of foreign
currency transaction will eliminate fluctuations in the prices of a Fund's
portfolio securities or prevent loss if the prices of such securities should
decline.
Currency transactions are subject to risks different from those of
other portfolio transactions. Because currency control is of great importance to
the issuing governments and influences economic planning and policy, government
exchange controls, blockages, and manipulations or exchange restrictions imposed
by governments can negatively affect purchases and sales of currency and related
instruments. These can result in losses to a Fund if it is unable to deliver or
receive currency or funds in settlement of obligations and could also cause
hedges it has entered into to be rendered useless, resulting in full currency
exposure as well as incurring transaction costs. Buyers and sellers of currency
futures are subject to the same risks that apply to the use of futures
generally. Further, settlement of a currency futures contract for the purchase
of most currencies must occur at a bank based in the issuing nation. Trading
options on currency futures is relatively new, and the ability to establish and
close out positions on such options is subject to the maintenance of a liquid
market that may not always be available. Currency exchange rates may fluctuate
based on factors extrinsic to that country's economy.
PORTFOLIO TRANSACTIONS
INVESTMENT DECISIONS
- --------------------
Investment decisions for the Funds and for the other investment
advisory clients of the Manager and the Subadvisor and their affiliates are made
with a view to achieving their respective investment objectives. Investment
decisions are the product of many factors in addition to basic suitability for
the particular client involved. Thus, a particular security may be bought or
sold for certain clients even though it could have been bought or sold for other
clients at the same time. Likewise, a particular security may be bought for one
or more clients when one or more other clients are selling the security. In some
37
<PAGE>
instances, one client may sell a particular security to another client. It also
sometimes happens that two or more clients simultaneously purchase or sell the
same security, in which event each day's transactions in such security are,
insofar as possible, averaged as to price and allocated between such clients in
a manner which in the Manager's or the Subadvisor's opinion is equitable to each
and in accordance with the amount being purchased or sold by each. There may be
circumstances when purchases or sales of portfolio securities for one or more
clients will have an adverse effect on other clients.
BROKERAGE AND RESEARCH SERVICES
- -------------------------------
Transactions on U.S. stock exchanges, commodities markets and futures
markets and other agency transactions involve the payment by a Fund of
negotiated brokerage commissions. Such commissions vary among different brokers.
A particular broker may charge different commissions according to such factors
as the difficulty and size of the transaction. Transactions in foreign
investments often involve the payment of fixed brokerage commissions, which may
be higher than those in the United States. In the case of securities traded in
the over-the-counter markets, the price paid by a Fund usually includes an
undisclosed dealer commission or mark-up. In underwritten offerings, the price
paid by a Fund includes a disclosed, fixed commission or discount retained by
the underwriter or dealer. It is anticipated that most purchases and sales of
securities by the Fixed Income Fund [and the High Yield Fund] will be with the
issuer or with underwriters of or dealers in those securities, acting as
principal. Accordingly, the Fixed Income Fund [and the High Yield Fund] would
not ordinarily pay significant brokerage commissions with respect to securities
transactions.
It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional investors
to receive brokerage and research services (as defined in the Securities
Exchange Act of 1934, as amended, and the rules promulgated thereunder (the
"1934 Act")) from broker-dealers that execute portfolio transactions for the
clients of such advisers and from third parties with which such broker-dealers
have arrangements. Consistent with this practice, the Manager and the Subadvisor
may receive brokerage and research services and other similar services from many
broker-dealers with which the Manager and the Subadvisor place the Funds'
portfolio transactions and from third parties with which these broker-dealers
have arrangements. These services may include such matters as trade execution
services, general economic and market reviews, industry and company reviews,
evaluations of investments, recommendations as to the purchase and sale of
investments, newspapers, magazines, pricing services, quotation services, news
services and personal computers utilized by the Manager's or Subadvisor's
investment professionals. Where the services referred to above are not used
exclusively by the Manager or the Subadvisor for brokerage or research purposes,
the Manager or Subadvisor, based upon allocations of expected use, would bear
that portion of the cost of these services which directly relates to their
non-brokerage or non-research use. Some of these services may be of value to the
Manager, the Subadvisor or their affiliates in advising various of their clients
(including
38
<PAGE>
the Funds), although not all of these services would necessarily be useful and
of value in managing the Funds or any particular Fund. The management fee paid
by each Fund is not reduced because the Manager, the Subadvisor or their
affiliates may receive these services even though the Manager or the Subadvisor
might otherwise be required to purchase some of these services for cash.
The Manager and Subadvisor each place orders for the purchase and sale
of portfolio investments for the Funds and buy and sell investments for the
Funds through a substantial number of brokers and dealers. In so doing, the
Manager and the Subadvisor use their best efforts to obtain for the Funds the
most favorable price and execution available, except to the extent they may be
permitted to pay higher brokerage commissions as described below. In seeking the
most favorable price and execution, the Manager and the Subadvisor, having in
mind each Fund's best interests, consider all factors they deem relevant,
including, by way of illustration, price, the size of the transaction, the
nature of the market for the security or other investment, the amount of the
commission, the timing of the transaction taking into account market prices and
trends, the reputation, experience and financial stability of the broker-dealer
involved and the quality of service rendered by the broker-dealer in other
transactions.
As permitted by Section 28(e) of the 1934 Act, and by each Management
Contract or, as applicable, each Subadvisory Agreement, the Manager and the
Subadvisor may cause a Fund to pay a broker-dealer which provides "brokerage and
research services" (as defined in the 1934 Act) to the Manager or Subadvisor an
amount of disclosed commission for effecting securities transactions on stock
exchanges and other transactions for such Fund on an agency basis in excess of
the commission which another broker-dealer would have charged for effecting that
transaction. The Manager's or the Subadvisor's authority to cause the Funds to
pay any such greater commissions is also subject to such policies as the
Trustees may adopt from time to time. It is the position of the staff of the SEC
that Section 28(e) does not apply to the payment of such greater commissions in
"principal" transactions. Accordingly the Manager and the Subadvisor will use
their best efforts to obtain the most favorable price and execution available
with respect to such transactions, as described above.
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The following tables show brokerage commissions on portfolio
transactions paid by each Fund (other than the International Fund, the Emerging
Markets Fund and the High Yield Fund, which are newly organized) during the
fiscal periods indicated.
1. FIXED INCOME FUND
-----------------
Fiscal Year ended Brokerage Commissions
----------------- ---------------------
December 31, 1997 $ -
December 31, 1998 $ -
October 31, 1999 (from January 1, 1999) $ -
2. VALUE FUND
----------
Fiscal Year ended Brokerage Commissions
----------------- ---------------------
December 31, 1997 $ -
December 31, 1998 $ -
October 31, 1999 (from January 1, 1999) $ -
3. GROWTH FUND
-----------
Fiscal Year ended Brokerage Commissions
----------------------------- ---------------------
December 31, 1998 (from January 20, 1998) $ -
October 31, 1999 (from January 1, 1999) $ -
4. DISCIPLINED GROWTH FUND
-----------------------
Fiscal Year ended Brokerage Commissions
----------------- ---------------------
December 31, 1997 $ -
December 31, 1998 $ -
October 31, 1999 (from January 1, 1999) $ -
5. ENTERPRISE III FUND
-------------------
Fiscal Year ended Brokerage Commissions
----------------- ---------------------
December 31, 1997 $ -
December 31, 1998 $ -
October 31, 1999 (from January 1, 1999) $ -
40
<PAGE>
6. MICRO CAP FUND
--------------
Fiscal Year ended Brokerage Commissions
----------------- ---------------------
December 31, 1998 (from July 20, 1998) $ -
October 31, 1999 (from January 1, 1999) $ -
7. GLOBAL SMALL CAP FUND
---------------------
Fiscal Year ended Brokerage Commissions
----------------- ---------------------
December 31, 1997 $ -
December 31, 1998 $ -
October 31, 1999 (from January 1, 1999) $ -
The following tables show transactions placed by each Fund (other than
the International Fund, the Emerging Markets Fund and the High Yield Fund, which
are newly organized) with brokers and dealers during the fiscal year ended
October 31, 1999 to recognize research, statistical and quotation services.
- -------------------------- ---------------------- ----------------- ------------
DOLLAR VALUE OF THOSE PERCENT OF TOTAL AMOUNT OF
TRANSACTIONS TRANSACTIONS COMMISSIONS
- -------------------------- ---------------------- ----------------- ------------
FIXED INCOME FUND $ - -% $ -
- -------------------------- ---------------------- ----------------- ------------
VALUE FUND $ - -% $ -
- -------------------------- ---------------------- ----------------- ------------
GROWTH FUND $ - -% $ -
- -------------------------- ---------------------- ----------------- ------------
DISCIPLINED GROWTH FUND $ - -% $ -
- -------------------------- ---------------------- ----------------- ------------
ENTERPRISE III FUND $ - -% $ -
- -------------------------- ---------------------- ----------------- ------------
MICRO CAP FUND $ - -% $ -
- -------------------------- ---------------------- ----------------- ------------
GLOBAL SMALL CAP FUND $ - -% $ -
- -------------------------- ---------------------- ----------------- ------------
41
<PAGE>
DESCRIPTION OF THE TRUST AND OWNERSHIP OF SHARES
The Trust, an open-end, management investment company, is organized as
a Massachusetts business trust under the laws of Massachusetts by an Agreement
and Declaration of Trust dated August 1, 1994, as amended (the "Declaration of
Trust"). A copy of the Declaration of Trust is on file with the Secretary of The
Commonwealth of Massachusetts. Each Fund is a non-diversified series of the
Trust. The fiscal year for each Fund ends on October 31. Prior to July 22, 1999,
the fiscal year for each Fund ended on December 31.
Each share of each Fund represents an equal proportionate interest in
such Fund. Shares of the Trust do not have any preemptive rights. Shares are
freely transferable and are entitled to dividends as declared by the Trustees.
Upon liquidation of a Fund, shareholders of such Fund are entitled to share pro
rata in the net assets of the Fund available for distribution to shareholders.
The Trust has an unlimited number of authorized shares of beneficial
interest. The Declaration of Trust permits the Trustees, without shareholder
approval, to subdivide any series of shares into various sub-series of shares
with such dividend preferences and other rights as the Trustees may designate.
While the Trustees have no current intention to exercise this power, it is
intended to allow them to provide for an equitable allocation of the impact of
any future regulatory requirements that might affect various classes of
shareholders differently. The Trustees may also, without shareholder approval,
establish one or more additional separate portfolios for investments in the
Trust or merge two or more existing portfolios. Shareholders' investments in
such a portfolio would be evidenced by a separate series of shares.
The Declaration of Trust provides for the perpetual existence of the
Trust. The Trust, however, may be terminated at any time by vote of at least
two-thirds of the outstanding shares of the Trust. The Declaration of Trust
further provides that the Trustees may also terminate the Trust, or any Fund
thereof, upon written notice to the shareholders.
42
<PAGE>
VOTING RIGHTS
- -------------
Shareholders are entitled to one vote for each full share held (with
fractional votes for fractional shares held) and will vote (to the extent
provided herein) in the election of Trustees and the termination of the Trust
and on other matters submitted to the vote of shareholders. Shareholders vote by
individual Fund on all matters except that (i) when required by the 1940 Act,
shares shall be voted in the aggregate and not by individual Fund, and (ii) when
the Trustees have determined that the matter affects only the interests of one
or more Funds, then only shareholders of such Funds shall be entitled to vote
thereon. Shareholders of one Fund shall not be entitled to vote on matters
exclusively affecting another Fund, such matters including, without limitation,
the adoption of or change in the investment objective, policies or restrictions
of the other Fund and the approval of the investment advisory contract of the
other Fund.
There will normally be no meetings of shareholders for the purpose of
electing Trustees except that in accordance with the 1940 Act (i) the Trust will
hold a shareholders' meeting for the election of Trustees at such time as less
than a majority of the Trustees holding office have been elected by
shareholders, and (ii) if, as a result of a vacancy in the Board of Trustees,
less than two-thirds of the Trustees holding office have been elected by the
shareholders, that vacancy may only be filled by a vote of the shareholders.
Upon written request by the holders of at least 10% of the outstanding shares
stating that such shareholders wish to communicate with the other shareholders
for the purpose of obtaining the signatures necessary to demand a meeting to
consider removal of a Trustee, the Trust has undertaken to provide a list of
shareholders or to disseminate appropriate materials (at the expense of the
requesting shareholders). In addition, shareholders of the Trust holding at
least 10% of the outstanding shares entitled to vote have the right to call a
meeting to elect or remove Trustees or to take other actions as provided in the
Declaration of Trust. Shareholders holding a majority of the outstanding shares
of the Trust may remove Trustees from office by votes cast in person or by proxy
at a meeting of shareholders or by written consent. Except as set forth above,
the Trustees shall continue to hold office and may appoint successor Trustees.
Voting rights are not cumulative.
No amendment may be made to the Declaration of Trust without the
affirmative vote of a majority of the outstanding shares of the Trust except (i)
to change the Trust's name or to cure technical problems in the Declaration of
Trust and (ii) to establish, designate or modify new and existing series or
sub-series of Trust shares or other provisions relating to Trust shares in
response to applicable laws or regulations.
43
<PAGE>
SHAREHOLDER AND TRUSTEE LIABILITY
- ---------------------------------
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement, obligation, or instrument entered into or executed by the Trust
or the Trustees. The Declaration of Trust provides for indemnification out of
the property of the relevant Fund for all loss and expense of any shareholder of
that Fund held personally liable for the obligations of the Trust. Thus, the
risk of a shareholder incurring financial loss on account of shareholder
liability is considered remote because it is limited to circumstances in which
the disclaimer is inoperative and the Fund of which he is or was a shareholder
would be unable to meet its obligations.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law. However, nothing in
the Declaration of Trust protects a Trustee against any liability to which the
Trustee would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct of
his office. The By-laws of the Trust provide for indemnification by the Trust of
the Trustees and the officers of the Trust except with respect to any matter as
to which any such person did not act in good faith in the reasonable belief that
his action was in or not opposed to the best interests of the Trust. Such person
may not be indemnified against any liability to the Trust or the Trust's
shareholders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
At February __, 2000, except as noted below, the officers and Trustees
of the Trust owned less than 1% as a group of the shares of any Fund, and, to
the knowledge of the Trust, no person owned of record or beneficially 5% or more
of the shares of any Fund.
1. FIXED INCOME FUND
-----------------
Shareholder Name and Address Percentage Owned
---------------------------- ----------------
44
<PAGE>
2. VALUE FUND
----------
Shareholder Name and Address Percentage Owned
---------------------------- ----------------
45
<PAGE>
3. GROWTH FUND
-----------
Shareholder Name and Address Percentage Owned
---------------------------- ----------------
4. DISCIPLINED GROWTH FUND
-----------------------
Shareholder Name and Address Percentage Owned
---------------------------- ----------------
5. ENTERPRISE III FUND
-------------------
Shareholder Name and Address Percentage Owned
---------------------------- ----------------
46
<PAGE>
6. MICRO CAP FUND
--------------
Shareholder Name and Address Percentage Owned
---------------------------- ----------------
7. GLOBAL SMALL CAP FUND
---------------------
Shareholder Name and Address Percentage Owned
---------------------------- ----------------
47
<PAGE>
INVESTMENT PERFORMANCE
STANDARD PERFORMANCE MEASURES
- -----------------------------
The yield of the Fixed Income Fund and the High Yield Fund may be
provided in reports, sales literature and advertisements. Yield is presented for
a specified thirty-day period (the "base period"). Yield is based on the amount
determined by (i) calculating the aggregate amount of dividends and interest
earned by a Fund during the base period less expenses for that period, and (ii)
dividing that amount by the product of (A) the average daily number of shares of
the Fund outstanding during the base period and entitled to receive dividends
and (B) the net asset value on the last day of the base period. The result is
annualized on a compounding basis to determine the yield. For this calculation,
interest earned on debt obligations held by a Fund is generally calculated using
the yield to maturity (or first expected call date) on such obligations based on
their market values (or, in the case of receivables-backed securities such as
securities issued by the Government National Mortgage Association, based on
cost). Dividends on equity securities are accrued daily at their stated dividend
rates. The yield for the Fixed Income Fund for the 30-day period ended October
31, 1999 was ____%.
Each Fund may also advertise its total return. Total Return with
respect to a Fund is a measure of the change in value of an investment in such
Fund over the period covered, which assumes any dividends or capital gains
distributions are reinvested immediately rather than paid to the investor in
cash. The formula for Total Return used herein includes four steps: (1) adding
to the total number of shares purchased by a hypothetical $1,000 investment in
the Fund all additional shares which would have been purchased if all dividends
and distributions paid or distributed during the period had been immediately
reinvested; (2) calculating the value of the hypothetical initial investment of
$1,000 as of the end of the period by multiplying the total number of shares
owned at the end of the period by the net asset value per share on the last
trading day of the period; (3) assuming redemption at the end of the period; and
(4) dividing this account value for the hypothetical investor by the initial
$1,000 investment. Average Annual Total Return is the annual compounded
percentage change in the value of the amount invested in the Fund from the
beginning until the end of the stated period.
All data is based on a Fund's past investment results and does not
predict future performance. Investment performance, which will vary, is based on
many factors, including market conditions, the composition of a Fund's
portfolio, and a Fund's operating expenses. Investment performance also often
reflects the risks associated with a Fund's investment objective and policies.
These factors should be considered when comparing a Fund's investment results to
those of other mutual funds and other investment vehicles.
48
<PAGE>
The inception dates for the Funds are as follows: Fixed Income Fund,
July 25, 1995; Value Fund, July 25, 1995; Growth Fund, January 20, 1998;
Disciplined Growth Fund, August 26, 1996; Enterprise III Fund, July 25, 1995;
Micro Cap Fund, July 20, 1998; Global Small Cap Fund, July 19, 1995;
International Fund, November 1, 1999; Emerging Markets Fund, November 1, 1999;
and High Yield Fund, ___________, 2000 (anticipated inception date).
PERFORMANCE COMPARISONS
- -----------------------
From time to time and only to the extent the comparison is appropriate
for the Funds, the Trust may quote the performance of the Funds in advertising
and other types of literature and may compare the performance of the Funds to
the performance of various indices and investments for which reliable
performance data is available. The performance of the Funds may be compared in
advertising and other literature to averages, performance rankings and other
information prepared by recognized mutual fund statistical services.
Performance information for the Funds may be compared, in reports and
promotional literature, to the S&P 500 Index, the Russell 2500 Index, the
Russell 2000 Index, the Russell 1000 Growth Index, the Russell 1000 Value Index,
the Lehman Brothers 5-7 Year Treasury Index, the Lehman Brothers Government Bond
Index, the Lehman Brothers Treasury Bond Index, the Lehman Brothers Aggregate
Bond Index, the Lehman Brothers Intermediate Treasury Index, the 91-Day Treasury
Bill Average, the Morgan Stanley Capital International Index for Europe,
Australasia and the Far East, the Morgan Stanley Emerging Markets Free Index,
the Standard & Poor's ("S&P") Barra Large Cap Value Index, the Salomon Brothers
Extended Market Index, ex-US, or other appropriate managed or unmanaged indices
of the performance of various types of investments, so that investors may
compare a Fund's results with those of indices widely regarded by investors as
representative of the security markets in general. Unmanaged indices may assume
the reinvestment of dividends, but generally do not reflect deductions for
administrative and management costs and expenses. Managed indices generally do
reflect such deductions.
The Trust also may use the following information in advertisements and
other types of literature, but only to the extent the information is appropriate
for the Funds: (1) the Consumer Price Index may be used to assess the real rate
of return from an investment in a Fund; (2) other government statistics,
including, but not limited to, The Survey of Current Business, may be used to
illustrate investment attributes of a Fund or the general economic, business,
investment, or financial environment in which the Fund operates; (3) the effect
of tax-deferred compounding on the investment returns of a Fund, or on returns
in general, may be illustrated by graphs, charts, etc., where such graphs or
charts would compare, at various points in time, the return from an investment
in the Fund (or returns in general) on a tax-deferred basis (assuming
reinvestment of capital gains and dividends
49
<PAGE>
and assuming one or more tax rates) with the return on a taxable basis; and (4)
the sectors or industries in which a Fund invests may be compared to relevant
indices of stocks or surveys (e.g., S&P Industry Surveys) to evaluate the Fund's
historical performance or current or potential value with respect to the
particular industry or sector.
Each Fund's performance also may be compared to those of other mutual
funds having similar objectives. This comparative performance could be expressed
as a ranking prepared by Lipper Analytical Services, Inc. (including the Lipper
General Bond Fund Average, the Lipper Intermediate Investment Grade Debt Fund
Average, the Lipper Bond Fund Average, the Lipper Growth Fund Average, the
Lipper Flexible Fund Average) or Morningstar, Inc. (including the Morningstar
Large Cap Value Fund Average), which are independent services that monitor the
performance of mutual funds. Any such comparisons may be useful to investors who
wish to compare a Fund's past performance with that of its competitors. Of
course, past performance cannot be a guarantee of future results.
OTHER ADVERTISING ITEMS
- -----------------------
The Trust may discuss in advertising and other types of literature that
a Fund has been assigned a rating by a nationally recognized statistical rating
organization ("NRSRO"), such as S&P. Such rating would assess the
creditworthiness of the investments held by such Fund. The assigned rating would
not be a recommendation to purchase, sell or hold the Fund's shares since the
rating would not comment on the market price of the Fund's shares or the
suitability of the Fund for a particular investor. In addition, the assigned
rating would be subject to change, suspension or withdrawal as a result of
changes in, or unavailability of, information relating to the Fund or its
investments. The Trust may compare a Fund's performance with other investments
that are assigned ratings by NRSROs. Any such comparisons may be useful to
investors who wish to compare a Fund's past performance with other rated
investments. Of course past performance cannot be a guarantee of future results.
General mutual fund statistics provided by the Investment Company Institute may
also be used.
DETERMINATION OF NET ASSET VALUE
As indicated in the Prospectus, the net asset value of each Fund share
is determined at 4:15 p.m., Eastern time, on each day on which the New York
Stock Exchange is open for trading. The Trust expects that the days, other than
weekend days, on which the New York Stock Exchange will not be open are New
Year's Day, Martin Luther King, Jr. Day, President's Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
50
<PAGE>
EXPERTS
The financial statements of the Funds for the fiscal year ended
October 31, 1999 incorporated by reference into this Statement of Additional
Information have been audited by Deloitte & Touche LLP, 125 Summer Street,
Boston, Massachusetts 02110, the Trust's independent auditors, as set forth in
each of their reports thereon appearing elsewhere herein, and are included in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
REPORT OF INDEPENDENT AUDITORS AND FINANCIAL STATEMENTS
The Trust's audited financial statements for the fiscal year ended
October 31, 1999 included in the Trust's Annual Reports filed with the SEC on
_______, 2000 pursuant to Section 30(d) of the 1940 Act are hereby incorporated
into this Statement of Additional Information by reference.
51
<PAGE>
APPENDIX
DESCRIPTION OF STOCK RATINGS
STANDARD & POOR'S EARNINGS AND DIVIDEND RANKINGS FOR COMMON STOCKS
Growth and stability of earnings and dividends are deemed key elements
in establishing Standard & Poor's earnings and dividend rankings for common
stocks. Basic scores are computed for earnings and dividends, then adjusted by a
set of predetermined modifiers for growth, stability within long-term trend, and
cyclically. Adjusted scores for earnings and dividends are then combined to
yield a final score. The final score is measured against a scoring matrix
determined by an analysis of the scores of a large and representative sample of
stocks. The rankings are:
A+ Highest
A High
A- Above Average
B+ Average
B Below Average
B- Lower
C Lowest
D In Reorganization
VALUE LINE RATINGS OF FINANCIAL STRENGTH
The financial strength of each of the companies reviewed by Value Line
is rated relative to all the others. The ratings are:
A++ The very highest relative financial strength.
A+ Excellent financial position relative to other companies.
A High grade relative financial strength.
B++ Superior financial health on a relative basis.
B+ Very good relative financial structure.
B Good overall relative financial structure.
C++ Satisfactory finances relative to other companies.
C+ Below-average relative financial position.
C Poorest financial strength relative to other major companies.
52
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK.]
53
<PAGE>
INVESTMENT MANAGER
David L. Babson & Co. Inc.
One Memorial Drive
Cambridge, MA 02142
INVESTMENT SUBADVISOR
Babson-Stewart Ivory International
One Memorial Drive
Cambridge, MA 02142
LEGAL COUNSEL
Ropes & Gray
One International Place
Boston, MA 02110
INDEPENDENT AUDITORS
Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116
CUSTODIAN
Investors Bank & Trust Company
John Hancock Tower
200 Clarendon Street, 16th Floor
Boston, MA 02116
TRANSFER AGENT
Investors Bank & Trust Company
John Hancock Tower
200 Clarendon Street, 5th Floor
Boston, MA 02116
54
<PAGE>
THE DLB FUND GROUP
FORM N-1A
PART C. OTHER INFORMATION
ITEM 23. EXHIBITS.
(a) Agreement and Declaration of Trust
(1) Agreement and Declaration of Trust*
(2) Amendment No. 1 to Agreement and Declaration of Trust*
(3) Amendment No. 2 to Agreement and Declaration of Trust**
(4) Amendment No. 3 to Agreement and Declaration of Trust**
(5) Amendment No. 4 to Agreement and Declaration of Trust***
(6) Amendment No. 5 to Agreement and Declaration of Trust****
(7) Amendment No. 6 to Agreement and Declaration of Trust*****
(8) Amendment No. 7 to Agreement and Declaration of Trust+
(9) Amendment No. 8 to Agreement and Declaration of Trust++
(b) By-Laws*
(c) Instruments Defining Rights of Security Holders - See Exhibits (a)
and (b)
(d) Forms of Management Contracts
(1) Management Contract between David L. Babson & Co. Inc. (the
"Manager") and The DLB Fund Group (the "Trust") relating to the
DLB Fixed Income Fund*
(2) Management Contract between the Trust and the Manager relating
to the DLB Global Small Capitalization Fund*
(3) Sub-Advisory Agreement between the Manager and Babson-Stewart
Ivory International ("BSII") relating to the DLB Global Small
Capitalization Fund*
(4) Management Contract between the Trust and the Manager relating
to the DLB Value Fund*
(5) Management Contract between the Trust and the Manager relating
to the DLB Mid Capitalization Fund*
(6) Management Contract between the Trust and the Manager relating
to the DLB Disciplined Growth Fund (formerly known as the DLB
Quantitative Equity Fund)#
(7) Management Contract between the Trust and the Manager relating
to the DLB Growth Fund**
(8) Management Contract between the Trust and the Manager relating
to the DLB Micro Capitalization Fund**
(9) Management Contract between the Trust and the Manager relating
to the DLB Stewart Ivory International Fund+
<PAGE>
(10) Management Contract between the Trust and the Manager relating
to the DLB Stewart Ivory Emerging Markets Fund+
(11) Sub-Advisory Agreement between the Manager and BSII relating to
the DLB Stewart Ivory International Fund+
(12) Sub-Advisory Agreement between the Manager and BSII relating to
the DLB Stewart Ivory Emerging Markets Fund+
(13) Management Contract between the Trust and the Manager relating
to the DLB High Yield Fund#
(e) Form of Principal Underwriter's Contract between the Trust and
Babson Securities Corporation+
(f) Bonus or Profit Sharing Contracts - Not Applicable
(g)(1) Form of Custodian Agreement between the Trust and Investors Bank &
Trust Company ("IBT")*
(g)(2) Form of Amendment to Custodian Agreement+
(g)(3) Form of Amendment to Custodian Agreement#
(h)(1) Form of Transfer Agency Agreement between the Trust and IBT**
(h)(2) Form of Amendment to Transfer Agency Agreement+
(h)(3) Fee Waiver and Expense Limitation Agreement+
(h)(4) Form of Agreement and Plan of Reorganization+
(h)(5) Form of Administration Agreement between the Trust and IBT+
(h)(6) Form of Amendment to Administration Agreement+
(h)(7) Form of Amendment to Administration Agreement#
(h)(8) Form of Amendment to Transfer Agency Agreement#
(i) Opinion and Consent of Ropes & Gray*
(j) Powers of Attorney for James W. MacAllen, Charles E. Hugel, Richard
A. Nenneman, Richard J. Phelps and DeAnne B. Dupont, appointing
James W. MacAllen, Frank L. Tarantino and DeAnne B. Dupont as
attorneys in fact***
2
<PAGE>
(k) Omitted Financial Statements - Not Applicable
(l) Letter of Understanding relating to Initial Capital*
(m) Forms of Rule 12b-1 Plans
(1) Form of Rule 12b-1 Plan for the Fixed Income Fund***
(2) Form of Rule 12b-1 Plan for the Value Fund***
(3) Form of Rule 12b-1 Plan for the Growth Fund***
(4) Form of Rule 12b-1 Plan for the Disciplined Growth Fund***
(5) Form of Rule 12b-1 Plan for the Mid Cap Fund***
(6) Form of Rule 12b-1 Plan for the Micro Cap Fund***
(7) Form of Rule 12b-1 Plan for the Global Small Cap Fund***
(8) Form of Rule 12b-1 Plan for the DLB Stewart Ivory International
Fund+
(9) Form of Rule 12b-1 Plan for the DLB Stewart Ivory Emerging
Markets Fund+
(10) Form of Rule 12b-1 Plan for the DLB High Yield Fund#
(n) Rule 18f-3 Plan - Not Applicable
(o) Reserved
(p) Code of Ethics#
- --------------------------
* Incorporated by reference to Registrant's Post-Effective Amendment No.
5 filed on February 19, 1997.
** Incorporated by reference to Registrant's Post-Effective Amendment No.
7 filed on April 30, 1998.
*** Incorporated by reference to Registrant's Post-Effective Amendment No.
10 filed on February 22, 1999.
**** Incorporated by reference to Registrant's Post-Effective Amendment No.
11 filed on April 22, 1999.
***** Incorporated by reference to Registrant's Post-Effective Amendment No.
12 filed on August 13, 1999.
+ Incorporated by reference to Registrant's Post-Effective Amendment No.
13 filed on October 29, 1999.
++ Filed herewith.
# To be filed by amendment.
3
<PAGE>
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
At and as of the date of this Post-Effective Amendment, the Registrant
did not, directly or indirectly, control any Person. Massachusetts Mutual Life
Insurance Company ("MassMutual") currently owns more than 25% of the outstanding
shares of each series of the Registrant (other than the DLB Stewart Ivory
International Fund and the DLB High Yield Fund) and therefore is deemed to
"control" each such Fund within the meaning of the Investment Company Act of
1940 (the "1940 Act").
The following entities are, or may be deemed to be, controlled by
MassMutual through the direct or indirect ownership of such entities' stock.
1. CM Assurance Company, a Connecticut corporation which operates as a
life and health insurance company, all the stock of which is owned by
MassMutual. This subsidiary is inactive.
2. CM Benefit Insurance Company, a Connecticut corporation which
operates as a life and health insurance company, all the stock of which is owned
by MassMutual. This subsidiary is inactive.
3. C.M. Life Insurance Company, a Connecticut corporation which
operates as a life and health insurance company, all the stock of which is owned
by MassMutual.
4. MML Bay State Life Insurance Company, a Connecticut corporation
which operates as a life and health insurance company, all the stock of which is
owned by MassMutual.
5. MML Distributors, LLC, a Connecticut limited liability company which
operates as a securities broker-dealer. MassMutual has a 99% ownership interest
and G.R. Phelps & Co. has a 1% ownership interest.
6. MassMutual Holding Company, a Delaware corporation which operates as
a holding company for certain MassMutual entities, all the stock of which is
owned by MassMutual.
7. MML Series Investment Fund, a Massachusetts business trust which
operates as an open-end investment company. All the shares issued by the Trust
are owned by MassMutual and certain of its affiliates.
8. MassMutual Institutional Funds, a Massachusetts business trust which
operates as an open-end investment company, all the shares of which are owned by
MassMutual.
4
<PAGE>
9. G.R. Phelps & Co., Inc., a Connecticut corporation which formerly
operated as a securities broker-dealer, all the stock of which is owned by
MassMutual Holding Company. This subsidiary is inactive and expected to be
dissolved.
10. MassMutual Mortgage Finance, LLC, a Delaware limited liability
company which makes, acquires, holds and sells mortgage loans.
11. MML Investors Services, Inc., a Massachusetts corporation which
operates as a securities broker-dealer. MassMutual Holding Company owns 86% of
the capital stock and G.R. Phelps & Co., Inc. owns 14% of the capital stock of
MML Investor Services, Inc.
12. MassMutual Holding MSC, Inc., a Massachusetts corporation, which
acts as a holding company for MassMutual positions in investment entities
organized outside the United States. MassMutual Holding Company owns all the
outstanding shares of MassMutual Holding MSC, Inc. This subsidiary qualifies as
a "Massachusetts Securities Corporation" under Chapter 63 of Massachusetts
General Laws.
13. MassMutual Holding Trust I, a Massachusetts business trust, which
operates as a holding company for separately staffed MassMutual investment
subsidiaries. MassMutual Holding Company owns all the outstanding shares of
MassMutual Holding Trust I.
14. MassMutual Holding Trust II, a Massachusetts business trust, which
operates as a holding company for non-staffed MassMutual investment
subsidiaries. MassMutual Holding Company owns all the outstanding shares of
MassMutual Holding Trust II.
15. MassMutual International, Inc., a Delaware corporation which
operates as a holding company for those entities constituting MassMutual's
international insurance operations, all the stock of which is owned by
MassMutual Holding Company.
16. MML Insurance Agency, Inc., a Massachusetts corporation which
operates as an insurance broker, all the stock of which is owned by MML
Investors Services, Inc.
17. MML Securities Corporation, a Massachusetts corporation which
operates as a "Massachusetts Securities Corporation" under Section 63 of the
Massachusetts General Laws, all the stock of which is owned by MML Investors
Services, Inc.
18. DISA Insurance Services of America, Inc., an Alabama corporation
which operates as an insurance broker. MML Insurance Agency, Inc. owns all the
shares of outstanding stock.
19. Diversified Insurance Services of America, Inc., a Hawaii
corporation which operates as an insurance broker. MML Insurance Agency, Inc.
owns all the shares of outstanding stock.
20. MML Insurance Agency of Mississippi, P.C., a Mississippi
corporation that operates as an insurance broker and is controlled by MML
Insurance Agency, Inc.
5
<PAGE>
21. MML Insurance Agency of Nevada, Inc., a Nevada corporation that
operates as an insurance broker, all the stock of which is owned by MML
Insurance Agency, Inc.
22. MML Insurance Agency of Ohio, Inc., an Ohio corporation which
operates as an insurance broker and is controlled by MML Insurance Agency, Inc.
through a voting trust agreement.
23. MML Insurance Agency of Texas, Inc., a Texas corporation which
operates as an insurance broker and is controlled by MML Insurance Agency, Inc.
through an irrevocable proxy arrangement.
24. MassMutual Corporate Value Limited, 46.41% of the shares of which
are owned by MassMutual Holding MSC, Inc.
25. MassMutual Corporate Value Partners Limited, a Cayman Islands
corporation that operates as a high yield bond fund. MassMutual Corporate Value
Limited holds approximately 88% ownership interest in this company and
MassMutual holds approximately 5% ownership interest in this company.
26. 9048-5434 Quebec, Inc., a Canadian corporation, which operates as
the owner of Hotel du Parc in Montreal, Quebec, Canada. MassMutual Holding MSC,
Inc. owns all the shares of 9048-5434 Quebec, Inc.
27. 1279342 Ontario Limited, a Canadian corporation, which operates as
the owner of Deerhurst Resort in Huntsville, Ontario, Canada. MassMutual Holding
MSC, Inc. owns all the shares of 1279342 Ontario Limited.
28. Antares Capital Corporation, a Delaware corporation that operates
as a finance company. MassMutual Holding Trust I owns approximately 99% of the
capital stock of Antares Capital Corporation.
29. Charter Oak Capital Management, Inc., a Delaware corporation that
operates as a manager of institutional investment portfolios. The Manager owns
80% of the capital stock of Charter Oak Capital Management, Inc.
30. Cornerstone Real Estate Advisers, Inc., a Massachusetts corporation
which operates as an investment adviser, all the stock of which is owned by
MassMutual Holding Trust I.
31. DLB Acquisition Corporation ("DLB"), a Delaware corporation, which
operates as a holding company for the Manager. MassMutual Holding Trust I owns
approximately 95% of the outstanding capital stock of DLB.
32. Oppenheimer Acquisition Corporation ("OAC"), a Delaware
corporation, which operates as a holding company for the Oppenheimer companies.
MassMutual Holding Trust I owns 89% of the capital stock of OAC.
6
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33. The Manager, a Massachusetts corporation which operates as an
investment adviser, all the stock of which is owned by DLB.
34. Babson Securities Corporation, a Massachusetts corporation which
operates as a securities broker-dealer, all the stock of which is owned by the
Manager.
35. Babson-Stewart-Ivory International, a Massachusetts general
partnership, which operates as an investment adviser. The Manager holds a 50%
ownership interest in the partnership.
36. Potomac Babson Incorporated, a Massachusetts corporation which
operated as an investment adviser. The Manager owns 99% of the outstanding
shares of Potomac Babson Incorporated.
37. OppenheimerFunds, Inc., a Colorado corporation which operates as an
investment adviser to the OppenheimerFunds, all the stock of which is owned by
OAC.
38. Centennial Asset Management Corporation, a Delaware corporation
that operates as the investment adviser and general distributor of the
Centennial Funds, all the stock of which is owned by OppenheimerFunds, Inc.
39. HarbourView Asset Management Corporation, a New York corporation,
which operates as an investment adviser, all the stock of which is owned by
OppenheimerFunds, Inc.
40. OppenheimerFunds Distributor, Inc., a New York corporation, which
operates as a securities broker-dealer, all the stock of which is owned by
OppenheimerFunds, Inc.
41. Oppenheimer Partnership Holdings, Inc., a Delaware corporation
which operates as a holding company, all the stock of which is owned by
OppenheimerFunds, Inc.
42. Oppenheimer Real Asset Management, Inc., a Delaware corporation
which is the subadviser to a mutual fund investing in the commodities markets,
all the stock of which is owned by OppenheimerFunds, Inc.
43. Shareholder Financial Services, Inc., a Colorado corporation which
operates as a transfer agent for mutual funds, all the stock of which is owned
by OppenheimerFunds, Inc.
44. Shareholder Services, Inc., a Colorado corporation which operates
as a transfer agent for various Oppenheimer and MassMutual funds, all the stock
of which is owned by OppenheimerFunds, Inc.
45. Centennial Capital Corporation, a Delaware corporation that
sponsored a unit investment trust, all the stock of which is owned by Centennial
Asset Management Corporation.
46. Cornerstone Office Management, LLC, a Delaware limited liability
company which serves as the general partner of Cornerstone Suburban Office
Investors, LP that is 50%
7
<PAGE>
owned by Cornerstone Real Estate Advisers, Inc. and 50% owned by MML Realty
Management Corporation.
47. Cornerstone Suburban Office Investors, LP, a Delaware limited
partnership, which operates as a real estate operating company. Cornerstone
Office Management, LLC holds a 1% general partnership interest in this fund and
MassMutual holds a 99% limited partnership interest.
48. CM Advantage, Inc., a Connecticut corporation that serves as a
general partner in real estate limited partnerships, all the stock of which is
owned by MassMutual Holding Trust II. This subsidiary is largely inactive and
will be dissolved in the near future.
49. CM International, Inc., a Delaware corporation which is the issuer
of collateralized mortgage obligation securities, all the stock of which is
owned by MassMutual Holding Trust II.
50. CM Property Management, Inc., a Connecticut corporation which
serves as the General Partner of Westheimer 335 Suites Limited Partnership, all
the stock of which is owned by MassMutual Holding Trust II.
51. HYP Management, Inc., a Delaware corporation which operates as the
manager of MassMutual High Yield Partners II LLC, a high yield bond fund.
MassMutual Holding Trust II owns all the outstanding stock of HYP Management,
Inc.
52. MMHC Investment, Inc., a Delaware corporation which is a passive
investor in MassMutual/Darby CBO IM, Inc.; MassMutual/Darby CBO, LLC; Somers
CDO, Limited; MassMutual High Yield Partners II, LLC and other MassMutual
investments. MassMutual Holding Trust II owns all the outstanding stock of MMHC
Investment, Inc.
53. MassMutual High Yield Partners II LLC, a Delaware limited liability
company that operates as a high yield bond fund. MassMutual holds approximately
2.52%, MMHC Investment Inc. holds approximately 34.87%, and HYP Management, Inc.
holds approximately 3.82%, for an approximate total ownership interest in this
company of 41.21%.
54. MML Realty Management Corporation, a Massachusetts corporation
which formerly operated as a manager of properties owned by MassMutual, all the
stock of which is owned by MassMutual Holding Trust II.
55. MassMutual Benefits Management, Inc., (formerly Westheimer 335
Suites, Inc.) a Delaware Corporation which supports MassMutual with benefit plan
administration and planning services. MassMutual Holding Trust II owns all of
the outstanding stock.
56. Somers CDO, Limited, a Cayman Islands corporation that operates as
a fund investing in high yield debt securities of primarily U.S. issues. MMHC
Investment, Inc. holds 38.10% of the subordinated notes of this issue which are
treated as equity for tax purposes. Registrant is the collateral manager of
Somers CDO, Limited.
8
<PAGE>
57. 505 Waterford Park Limited Partnership, a Delaware limited
partnership, which holds title to an office building in Minneapolis, Minnesota.
MML Realty Management Corporation holds a 1% general partnership interest in
this partnership and MassMutual holds a 99% limited partnership interest.
58. MassMutual/Darby CBO IM Inc., a Delaware corporation which operates
as the manager of MassMutual/Darby CBO LLC, a collateralized bond obligation
fund. MMHC Investment, Inc. owns 50% of the capital stock of this company.
59. MassMutual/Darby CBO LLC, a Delaware limited liability company that
operates as a fund investing in high yield debt securities of U.S. and emerging
market issuers. MassMutual holds 1.79%, MMHC Investment Inc. holds 44.91% and
MassMutual High Yield Partners LLC holds 2.39% of the ownership interest in this
company.
60. Urban Properties, Inc., a Delaware corporation which serves as a
General Partner of real estate limited partnerships and as a real estate holding
company, all the stock of which is owned by MassMutual Holding Trust II.
61. Westheimer 335 Suites Limited Partnership, a Texas limited
partnership of which MassMutual Benefits Management is the general partner.
62. MassMutual Internacional (Argentina) S.A., a corporation organized
in the Argentine Republic, which operates as a holding company. MassMutual
International Inc. owns 99% of the outstanding shares and MassMutual Holding
Company owns the remaining 1% of the shares.
63. MassMutual Internacional (Chile) S.A., a corporation organized in
the Republic of Chile, which operates as a holding company. MassMutual
International Inc. owns 99% of the outstanding shares and MassMutual Holding
Company owns the remaining 1% of the shares.
64. MassMutual International (Bermuda) Ltd., a corporation organized in
Bermuda, which operates as a life insurance company, all the stock of which is
owned by MassMutual International Inc.
65. MassMutual International (Luxembourg) S.A., a corporation organized
in the Grand Duchy of Luxembourg, which operates as a life insurance company.
MassMutual International Inc. owns 99% of the outstanding shares and MassMutual
Holding Company owns the remaining 1% of the shares.
66. MassLife Seguros de Vida S.A., a corporation organized in the
Argentine Republic, which operates as a life insurance company. MassMutual
International Inc. owns 99.9% of the outstanding capital stock of MassLife
Seguros de Vida S.A.
67. MassMutual Services, S.A., a corporation organized in the Argentine
Republic which operates as a service company. MassMutual Internacional
(Argentina) S.A. owns 99% of the outstanding shares and MassMutual
International, Inc. owns 1% of the shares.
9
<PAGE>
68. Mass Seguros de Vida S.A., a corporation organized in the Republic
of Chile, which operates as a life insurance company. MassMutual International
(Chile) S.A. owns 33.5% of the outstanding capital stock of Mass Seguros de Vida
S.A.
69. Origen Inversiones S.A., a corporation organized in the Republic of
Chile which operates as a holding company. MassMutual Internacional (Chile) S.A.
holds a 33.5% ownership interest in this corporation.
70. Compania de Seguros VidaCorp, S.A., a corporation organization in
the Republic of Chile, which operates as an insurance company. Origen
Inversiones S.A. owns 99% of the outstanding shares of this company.
71. Oppenheimer Series Fund Inc., a Maryland corporation which operates
as an investment company, of which MassMutual and its affiliates own a majority
of certain series of shares issued by the fund.
72. Panorama Series Fund, Inc., a Maryland corporation which operates
as an open end investment company. All shares issued by the fund are owned by
MassMutual and certain affiliates.
73. The DLB Fund Group, a Massachusetts business trust which operates
as an open end investment company advised by the Manager. MassMutual owns at
least 25% of each series of shares issued by the Trust.
74. Saar Holdings CDO, Limited, a Cayman Islands corporation that
operates as a collateralized debt obligation fund investing in high yield debt
securities of primarily U.S. issuers including, to a limited extent, convertible
high yield bonds. MMHC Investment Inc. holds 40% of the mandatorily redeemable
preferred shares of this issuer. Such preferred shares are treated as equity for
tax purposes. MassMutual is the collateral manager of Saar Holdings CDO,
Limited.
75. Enhanced Mortgage-Backed Securities Fund Limited, a special purpose
company incorporated with limited liability in the Cayman Islands investing
primarily in residential and commercial mortgage backed securities and through
the application of various portfolio optimization techniques. The Manager is the
Investment Manager and Valuation Agent and MassMutual holds all of the Class B
notes and 48% of the Class C Certificates and at least 25% of the aggregate
principal amount of Class C Certificates directly or through a wholly owned
affiliate.
76. Perseus CDO I, Limited is a Cayman Island Corporation that operates
as a collateralized debt obligation fund investing in a diversified portfolio of
assets including high yield bonds, senior secured loans, a limited amount of
equity securities and certain other assets. MMHC Investment, Inc. holds 33.4% of
the Class D subordinated notes issued by Perseus CDO I Limited. Such notes are
treated as equity for tax purposes. MassMutual is the portfolio manager and
Perseus Advisors, L.L.C. is the portfolio advisor of Perseus CDO I, Limited.
77. MassMutual Global CBO I Limited is a Cayman Island Corporation that
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<PAGE>
operates as a collateralized bond obligation fund investing in emerging market
securities and high yield bonds. As of the closing date of this fund (June 16,
1999), MassMutual and its indirect subsidiary, MMHC Investment, Inc., hold in
the aggregate approximately 39.7% of the subordinated notes that are treated as
equity for tax purposes. MassMutual is the Collateral Manager of MassMutual
Global CBO I Limited.
78. Antares Funding L.P. is a Cayman Islands exempted limited
partnership that invests primarily in high yield bank loans and public high
yield bonds. Antares Capital Corporation, an indirect subsidiary of MassMutual,
is the collateral manager of Antares Funding L.P. MassMutual manages the High
Yield Collateral Debt Securities and the Manager acts as sub-adviser.
79. Maplewood (Cayman) Limited is an entity organized under the laws
of the Cayman Islands that invests primarily in bank loans and high yield public
debt. MassMutual is investment adviser to this fund, and the Manager acts as
sub-adviser.
80. Simsbury CLO, Limited is a Cayman Islands corporation that
operates as a collaterized bond obligations fund that invests primarily in bank
loans and high yield bonds. MassMutual is investment adviser and the Manager
acts as sub-adviser.
MassMutual or one of its subsidiaries acts as the investment adviser of
the following investment companies, and as such may be deemed to control them.
1. MML Series Investment Fund, a Massachusetts business trust which
operates as an open-end investment company. All shares issued by MML Series
Investment Fund are owned by MassMutual and certain of its affiliates.
2. MassMutual Corporate Investors ("CI"), a Massachusetts business
trust which operates as a closed-end investment company. The Manager is the
investment adviser to CI.
3. MassMutual Corporate Value Partners Limited, a Cayman Islands
corporation that operates as a high-yield bond fund. MassMutual Corporate Value
Limited holds an ownership interest in this company of approximately 93%.
4. MassMutual High Yield Partners LLC, a Delaware limited liability
company that operates as a high yield bond fund. MassMutual holds approximately
2.52%, MMHC Investment Inc. holds approximately 34.87%, and HYP Management, Inc.
holds approximately 3.82% for an approximate total of 41.21% of the ownership
interest in this company.
5. MassMutual Institutional Funds, a Massachusetts business trust which
operates as an open-end investment company, all the shares of which are owned by
MassMutual.
6. MassMutual Participation Investors ("PI"), a Massachusetts business
trust which operates as a closed end investment company. The Manager is the
investment adviser to PI.
7. MassMutual/Darby CBO, LLC, a Delaware limited liability company that
operates as a fund investing in high yield debt securities of U.S. and emerging
market issuers. MassMutual owns 1.79%, MMHC Investment, Inc. owns 44.91% and
MassMutual High Yield Partners LLC owns 2.39% of the ownership interest in this
company.
8. Somers CDO, Limited, a Cayman Islands corporation that operates as a
fund investing in high yield debt securities of primarily U.S. issues. MMHC
Investment Inc. holds 38.1% of the subordinated notes of this issue which are
treated as equity for tax purposes. Registrant is the collateral manager of
Somers CDO, Limited.
9. Enhanced Mortgage-Backed Securities Fund Limited, a special purpose
company incorporated with limited liability in the Cayman Islands investing
primarily in residential and commercial mortgage backed securities and through
the application of various portfolio optimization techniques. The Manager is the
Investment Manager and Valuation Agent and MassMutual holds
11
<PAGE>
all of the Class B notes and 48% of the Class C Certificates and at least 25% of
the aggregate principal amount of Class C Certificates directly or through a
wholly owned affiliate.
10. Saar Holdings CDO, Limited, a Cayman Islands corporation that
operates as a collateralized debt obligation fund investing in high yield debt
securities of primarily U.S. issuers including, to a limited extent, convertible
high yield bonds. MMHC Investment Inc. holds 40% of the mandatorily redeemable
preferred shares of this issuer. Such preferred shares are treated as equity for
tax purposes. MassMutual is the collateral manager of Saar Holdings CDO,
Limited and the Manager is the investment sub-adviser.
11. Perseus CDO I, Limited is a Cayman Island Corporation that operates
as a collateralized debt obligation fund investing in a diversified portfolio of
assets including high yield bonds, senior secured loans, a limited amount of
equity securities and certain other assets. MMHC Investment, Inc. holds 33.4% of
the Class D subordinated notes issued by Perseus CDO I Limited. Such notes are
treated as equity for tax purposes. MassMutual is the portfolio manager and
Perseus Advisors, L.L.C. is the portfolio advisor of Perseus CDO I, Limited. The
Manager is the investment sub-adviser.
12. MassMutual Global CDO I Limited is a Cayman Island Corporation that
operates as a collateralized bond obligation fund investing in emerging market
securities and high yield bonds. As of the closing date of this fund (June 16,
1999), MassMutual and its indirect subsidiary, MMHC Investment, Inc. hold in the
aggregate approximately 39.7% of the subordinated notes that are treated as
equity for tax purposes. MassMutual is the Collateral Manager of MassMutual
Global CDO I Limited. The Manager is the investment sub-adviser.
13. Antares Funding L.P. is a Cayman Islands exempted limited
partnership that invests primarily in high yield bank loans and public high
yield bonds. Antares Capital Corporation, an indirect subsidiary of MassMutual,
is the collateral manager of Antares Funding L.P. Antares Capital Corporation
manages the selection, acquisition, and disposition of the Loan Collateral Debt
Securities. MassMutual manages the High Yield Collateral Debt Securities and the
Manager acts as sub-adviser.
14. Maplewood (Cayman) Limited is an entity organized under the laws of
the Cayman Islands that invests primarily in bank loans and high yield public
debt. MassMutual is investment adviser to this fund, and the Manager acts as
sub-adviser.
15. Simsbury CLO, Limited is a Cayman Islands corporation that
operates as a collaterized bond obligations fund investing primarily in bank
loans and high yield bonds. MassMutual is investment adviser and the Manager
acts as sub-adviser.
12
<PAGE>
ITEM 25. INDEMNIFICATION.
Article VIII (Sections 1, 2 and 3) of Registrant's Agreement and Declaration of
Trust provides as follows with respect to indemnification of the Trustees and
officers of Registrant against liabilities which may be incurred by them in such
capacities:
Section 1. Trustees, Officers, Etc. The Trust shall indemnify each of its
Trustees and officers (including persons who serve at the Trust's request as
directors, officers or trustees of another organization in which the Trust has
any interest as a shareholder, creditor or otherwise) (hereinafter referred to
as a "Covered Person") against all liabilities and expenses, including but not
limited to amounts paid in satisfaction of judgments, in compromise or as fines
and penalties, and counsel fees reasonably incurred by any Covered Person in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or administrative or
legislative body, in which such Covered Person may be or may have been involved
as a party or otherwise or with which such Covered Person may be or may have
been threatened, while in office or thereafter, by reason of being or having
been such a Covered Person, except with respect to any matter as to which such
Covered Person shall have been finally adjudicated in any such action, suit or
other proceeding to be liable to the Trust or its Shareholders by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Covered Person's office. Expenses,
including counsel fees so incurred by any such Covered Person (but excluding
amounts paid in satisfaction of judgments, in compromise or as fines or
penalties), shall be paid from time to time by the Trust in advance of the final
disposition of any such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such Covered Person to repay amounts so paid to
the Trust if it is ultimately determined that indemnification of such expenses
is not authorized under this Article, provided, however, that either (a) such
Covered Person shall have provided appropriate security for such undertaking,
(b) the Trust shall be insured against losses arising from any such advance
payments or (c) either a majority of the disinterested Trustees acting on the
matter (provided that a majority of the disinterested Trustees then in office
act on the matter), or independent legal counsel in a written opinion, shall
have determined, based upon a review of readily available facts (as opposed to a
full trial type inquiry) that there is reason to believe that such Covered
Person will be found entitled to indemnification under this Article.
Section 2. Compromise Payment. As to any matter disposed of (whether by a
compromise payment, pursuant to a consent decree or otherwise) without an
adjudication by a court, or by any other body before which the proceeding was
brought, that such Covered Person is liable to the Trust or its Shareholders by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his or her office, indemnification
shall be provided if (a) approved, after notice that it involves such
indemnification, by at least a majority of the disinterested Trustees acting on
the matter (provided that a majority of the disinterested Trustees then in
office act on the matter) upon a determination, based upon a review of readily
available facts (as opposed to a full trial type inquiry), that such Covered
Person is not liable to the Trust or its Shareholders by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office, or (b) there has been obtained an
opinion in writing of independent legal counsel, based upon a review of readily
available facts (as opposed to a full trial type inquiry), to the effect that
13
<PAGE>
such indemnification would not protect such Person against any liability to the
Trust to which he would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office. Any approval pursuant to this Section shall not
prevent the recovery from any Covered Person of any amount paid to such Covered
Person in accordance with this Section as indemnification if such Covered Person
is subsequently adjudicated by a court of competent jurisdiction to have been
liable to the Trust or its Shareholders by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of such Covered Person's office.
Section 3. Indemnification Not Exclusive. The right of indemnification hereby
provided shall not be exclusive of or affect any other rights to which such
Covered Person may be entitled. As used in this Article VIII, the term "Covered
Person" shall include such person's heirs, executors and administrators and a
"disinterested Trustee" is a Trustee who is not an "interested person" of the
Trust as defined in Section 2(a)(19) of the 1940 Act (or who has been exempted
from being an "interested person" by any rule, regulation or order of the
Commission), and against whom none of such actions, suits or other proceedings
or another action, suit or other proceeding on the same or similar grounds is
then or has been pending. Nothing contained in this Article shall affect any
rights to indemnification to which personnel of the Trust, other than Trustees
or officers, and other persons may be entitled by contract or otherwise under
law, nor the power of the Trust to purchase and maintain liability insurance on
behalf of any such person; provided, however, that the Trust shall not purchase
or maintain any such liability insurance in contravention of applicable law,
including without limitation the 1940 Act.
14
<PAGE>
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER.
(a) The directors and executive officers of the Manager, which is
located at One Memorial Drive, Cambridge, Massachusetts 02142, their positions
with the Manager and their other business affiliations and business experience
for the past two years are as follows:
STUART H. REESE, Director, President and Chief Executive Officer
President and Chief Executive Officer (since 1999), the Manager; Executive Vice
President and Chief Investment Officer (since 1999), Chief Executive Director
(1997-1999), Executive Director (1996-1997), Senior Vice President (1993-1996),
MassMutual (insurance company and investment adviser), 1295 State Street,
Springfield, Massachusetts 01111.
KEVIN M. MCCLINTOCK, Executive Vice President
Executive Vice President (since 1999), the Manager; Managing Director,
Babson-Stewart Ivory International (registered investment adviser, of which the
Manager is a 50% general partner), One Memorial Drive, Cambridge, Massachusetts
(since 1999). Director of Equities and Fixed Income (since 1995), the Dreyfus
Corporation, (investment manager), New York, New York.
FRANK L. TARANTINO, Director, Executive Vice President, Chief Financial Officer
and Chief Compliance Officer
Director, Executive Vice President, Chief Financial Officer and Chief Compliance
Officer (since 1999) and Clerk and Chief Operating Officer (since 1997), the
Manager; Director (since 1998), President (since 1999), Clerk (since 1997),
Potomac Babson Inc. (investment advisory subsidiary of the Manager), 1290 Avenue
of the Americas, New York, New York; President (1993-1997) Liberty Securities
Corporation (broker-dealer), 600 Atlantic Avenue, Boston, Massachusetts.
MARY WILSON-KIBBE, Executive Director and Executive Vice President
Executive Director and Executive Vice President (since 1999), the Manager;
Executive Director (1997-1999), Senior Managing Director (1995-1997), Vice
President and Managing Director (1991-1994), MassMutual (insurance company and
investment adviser), 1295 State Street, Springfield, Massachusetts 01111.
LANCE F. JAMES, Director and Executive Vice President
Director and Executive Vice President (since 1999), Senior Vice President (1996-
1999), Portfolio Manager (since 1987), the Manager.
STEPHEN B. O'BRIEN, Director and Executive Vice President
Director and Executive Vice President (since 1999), Senior Vice President (1996-
1999), the Manager; Managing Director, Babson-Stewart Ivory International
(registered investment adviser, of which the Manager is a 50% general partner),
One Memorial Drive, Cambridge, Massachusetts.
15
<PAGE>
WALTER T. MCCORMICK, Director and Executive Vice President
Director and Executive Vice President (since 1999), Senior Vice President (1998-
1999), the Manager; Senior Vice President (1994-1998), Keystone Investment
Management Co., Boston, Massachusetts.
KENNETH L. HARGREAVES, Executive Director
Executive Director (since 2000), the Manager; Executive Director (1997-1999),
Senior Vice President (1991-1997), MassMutual.
ROBERT E. JOYAL, Executive Director
Executive Director (since 2000), the Manager; Executive Director (1998-1999),
Senior Managing Director (1996-1998), Vice President and Managing Director
(1990-1996), MassMutual.
EFREM MARDER, Executive Director
Executive Director (since 2000), the Manager; Executive Director (1998-1999),
Senior Managing Director (1996-1998), Vice President and Managing Director
(1989-1996), MassMutual.
JEANNE M. STAMANT, Executive Director
Executive Director (since 2000), the Manager; Executive Director (1996-1999),
Vice President, Actuary and Executive Officer (1995-1996), Vice President and
Actuary (1987-1994), MassMutual.
STEPHEN L. KUHN, General Counsel and Clerk
General Counsel and Clerk (since 2000), the Manager; Vice President and Deputy
General Counsel (since 1998), Vice President and Associate General Counsel
(1992-1998), MassMutual; Vice President and Secretary, MassMutual Participation
Investors and MassMutual Corporate Investors (closed end investment companies);
Assistant Secretary (since 1996), Antares Capital Corporation (finance company);
Chief Legal Officer and Assistant Secretary (since 1995), DLB Acquisition
Corporation (holding company for investment advisers); Assistant Secretary,
Oppenheimer Acquisition Corporation (holding company for investment advisers);
Vice President and Secretary, MassMutual Institutional Funds (open end
investment company).
16
<PAGE>
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) Effective October 20, 1999, Babson Securities Corp. ("BSC") became the
principal underwriter for the Trust. The ten separate series of the Trust are:
1) DLB Fixed Income Fund
2) DLB Value Fund
3) DLB Growth Fund
4) DLB Disciplined Growth Fund
5) DLB Enterprise III Fund
6) DLB Micro Capitalization Fund
7) DLB Global Small Capitalization Fund
8) DLB Stewart Ivory International Fund
9) DLB Stewart Ivory Emerging Markets Fund
10) DLB High Yield Fund
(b) The following are the names and positions of the officers and directors of
BSC:
Frank L. Tarantino, Director, President, Clerk and Treasurer
John E. Deitelbaum, Assistant Clerk
The business address for both Mr. Tarantino and Mr. Deitelbaum is c/o
David L. Babson & Co. Inc., One Memorial Drive, Cambridge, MA 02142. Mr.
Tarantino is President of the Trust, and Mr. Deitelbaum is Clerk of the Trust.
(c) Not Applicable
17
<PAGE>
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
The accounts, books or other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder are
kept by the Registrant and the Manager at their respective principal business
offices at One Memorial Drive, Cambridge, Massachusetts 02142, by the Manager at
1295 State Street, Springfield, Massachusetts 01111, and by IBT, the
Registrant's Custodian and Transfer Agent, at its principal business office at
200 Clarendon Street, Boston, Massachusetts 02116.
18
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ITEM 29. MANAGEMENT SERVICES.
There are no management-related service contracts not discussed in Part
A or Part B.
19
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ITEM 30. UNDERTAKINGS.
Not Applicable.
NOTICE
A copy of the Agreement and Declaration of Trust of the Trust, as
amended, is on file with the Secretary of The Commonwealth of Massachusetts, and
notice is hereby given that this instrument is executed on behalf of the Trust
by an officer of the Trust as an officer and not individually and the
obligations of or arising out of this instrument are not binding upon any of the
Trustees or shareholders individually but are binding only upon the assets and
property of the relevant series of the Trust.
20
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended
(the "Securities Act"), and the Investment Company Act of 1940, as amended, the
Trust certifies that it has duly caused this Post-Effective Amendment to its
Registration Statement on Form N-1A to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cambridge, The
Commonwealth of Massachusetts, on the 14th day of January, 2000. The Trust
certifies that this Post-Effective Amendment meets all of the requirements for
effectiveness pursuant to Rule 485(a) under the Securities Act.
THE DLB FUND GROUP
By: FRANK L. TARANTINO
----------------------------
Name: Frank L. Tarantino
Title: President
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment to the Registration Statement of The DLB Fund Group has been signed
below by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
FRANK L. TARANTINO President and January 14, 2000
- ------------------ Principal Executive Officer
Frank L. Tarantino
DEANNE B. DUPONT Treasurer; Principal Financial January 14, 2000
- ------------------ Officer; Principal Accounting
DeAnne B. Dupont Officer
CHARLES E. HUGEL* Trustee January 14, 2000
- ------------------
Charles E. Hugel
Trustee January 14, 2000
- ------------------
Kevin M. McClintock
RICHARD A. NENNEMAN* Trustee January 14, 2000
- ------------------
Richard A. Nenneman
RICHARD J. PHELPS* Trustee January 14, 2000
- ------------------
Richard J. Phelps
*By: FRANK L. TARANTINO
----------------------
Frank L. Tarantino
Attorney-In-Fact
January 14, 2000
</TABLE>
21
THE DLB FUND GROUP
AMENDMENT NO. 8
AGREEMENT AND DECLARATION OF TRUST
The undersigned, being at least a majority of the Trustees of the DLB
Fund Group, a Massachusetts business trust, created and existing under an
Agreement and Declaration of Trust dated August 1, 1994, as amended by Amendment
No. 1 thereto dated May 16, 1996, Amendment No. 2 thereto dated December 17,
1997, Amendment No. 3 thereto dated April 22, 1998, Amendment No. 4 thereto
dated February 12, 1998, Amendment No. 5 thereto dated February 12, 1998,
Amendment No. 6 thereto dated May 12, 1999 and Amendment No. 7 thereto dated
October 20, 1999 (the "Agreement"), a copy of which is on file in the Office of
the Secretary of State of the Commonwealth of Massachusetts, do hereby direct
that this Amendment No. 8 be filed with the Secretary of State of the
Commonwealth of Massachusetts and do hereby amend the first sentence of Section
6 of Article III of the Agreement to read in its entirety as follows:
"Without limiting the authority of the Trustees set forth in Section 5,
inter alia, to establish and designate any further Series or Classes or
to modify the rights and preferences of any Series or Classes, the "DLB
Fixed Income Fund", the "DLB Value Fund", the "DLB Growth Fund", the
"DLB Disciplined Growth Fund", the "DLB Enterprise III Fund", the "DLB
Micro Capitalization Fund", the "DLB Global Small Capitalization Fund",
the "DLB Stewart Ivory International Fund", the "DLB Stewart Ivory
Emerging Markets Fund" and the "DLB High Yield Fund" shall be, and
hereby are, established and designated as separate Series of the
Trust."
The foregoing amendment shall become effective as of the time it is
filed with the Secretary of State of the Commonwealth of Massachusetts.
<PAGE>
IN WITNESS WHEREOF, we have hereunto set our hands for ourselves and
our successors and assigns this 21st day of December, 1999.
/s/ Charles E. Hugel
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Charles E. Hugel
/s/ Richard A. Nenneman
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Richard A. Nenneman
/s/ Richard J. Phelps
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Richard J. Phelps
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